Data-storage giant EMC
Does EMC's stellar performance foreshadow another strong report from rival NetApp
Skeptics, skeptics everywhere
First off, Mr. Market didn't take EMC's beat as a sign of industrywide power. NetApp shares gained just a smidgen on that news and has underperformed the Nasdaq index in the three weeks since. Fundamental storage components maker Xyratex
So the market isn't exactly bracing for a massive shock to the upside. On a longer view, NetApp shares have lost 9% of their value in three months, well below the general market.
Analysts aren't looking for miracles, either. The consensus estimate calls for $0.58 of non-GAAP earnings per share on sales of $1.56 billion, which would be just 12% higher earnings year over year on 23% stronger revenues. By contrast, EMC is growing earnings faster than sales. The Street looks for shrinking margins here.
Management's own view isn't any rosier; in fact, it's exactly in line with the Street targets. Then again, that forecast was made a long time ago, and it's conservative because of the flooding problems in Thailand and economic turmoil in Europe.
The sunny side of the street
But EMC and Seagate, among others, have shown that the storage industry can and does deliver good results in the current business climate. Back in December, then-CFO Steve Gomo told an industry conference that NetApp's Thai issues shouldn't be exceptional: "I think it's fair to stipulate that I don't think we're going to do any better or any worse than the other big players in the market. Ourselves and our big competitor, we're probably going to have the same type of result."
So there you have it -- expect NetApp to follow EMC's path. It'd be one thing if NetApp was losing market share to EMC and other rivals, but my tea leaves aren't pointing in that direction. This is a rising tide lifting all boats, including the good ship NetApp.
EMC rode Big Data and cloud computing to a terrific report, and I see no reason NetApp wouldn't do the same. NetApp investors have no reason to be nervous this week. My bullish CAPScall on this stock is deeply in the red, and it'd take a minor miracle to change that overnight, but NetApp is priced for the bargain bin and poised for a large bounce in 2012.