DS and others,They continue to pick on we faithful! Latest from SmartMoney site. Seems to be very general and certainly offers nothing we have not been hearing already in the past several months. I have not previously seen the statistic they quote: NTAPs business comes 5% from dotcoms and 30% from telecoms. Earnings, conference call guidance as you stated and the next 6 months will hopefully unmuddy the water in our favor. Notice that this Hurley fellow from the Yankee Group quotes EMC but not NTAP. Things that make you go hmmmmm....
smartmoney.com
HOW QUICKLY THE winds of technology can change. When they're favorable, companies lounge around in a luxurious, sunny warmth. But when a different strategy blows in, things can get downright frigid. And a recent shift in the weather has turned things a bit frosty for Network Appliance (NTAP).
It was only last summer that Network Appliance was basking in the market's adulation. Sure, EMC (EMC) was still the storage industry's reigning king. But Network Appliance was focusing on a high-growth niche, making products that let companies quickly and easily plug additional storage capacity directly into their networks. And that got a lot of people excited. Network Appliance dominates the market for these so-called network-attached storage, or NAS, appliances, and its stock benefited enormously. Despite last year's heavy tech malaise, the stock ended 2000 55% higher than it started — and at one point was up 267%.
Now, it seems stiff competition (primarily from EMC), an overall industry shift and the general decline in information-technology spending are all contributing to an increasing sense of pessimism about Network Appliance. In the past couple of weeks, three Wall Street firms have become more cautious on Network Appliance. On Thursday, Credit Suisse First Boston added its voice to the chorus, and the stock fell 13%, putting it 27% lower year-to-date.
Of course, no one expected Network Appliance to have its lucrative niche cornered for long. With NAS estimated to grow to a $6 billion market in 2004 from $2 billion last year, it was only a matter of time before competition heated up and everyone was vying for a chunk of the business. While Network Appliance was an early beneficiary of the shift to NAS, the big question has always been what EMC would do and how aggressive that response would be (more on that later).
There's also the issue of widespread slowing IT spending. Despite all the talk about how IT spending is declining, storage is probably one of the areas that won't feel as severe a pinch — the need for it is just too great. But that doesn't mean some customers — namely the capital-squeezed telecommunications providers and the struggling dot-coms — aren't slowing their spending more rapidly than others. And with roughly 30% of Network Appliance's sales coming from telecom and 5% exposure from dot-coms, according to Goldman Sachs, the company is bound to feel the pinch.
But the bigger challenge by far for Network Appliance has been the co-emergence of a competing type of storage called a storage area network, or SAN. At first blush, Network Appliance's forte, NAS, would seem to have the advantage over SAN, which is a more complex and pricier technology. Where attaching an NAS appliance into an existing network is a fairly simple process, installing SAN is a major undertaking. It's a separate storage network that's connected to an existing network of users. But while NAS is highly regarded for its simplicity and reliability, SAN is considered the best technology to tackle the most demanding applications. For example, to handle large world-wide databases, a company would probably prefer a SAN over a NAS.
While some once viewed NAS and SAN as competing types of storage, now the thinking is that many companies will want to use NAS for some types of storage and SAN for others. A company might opt for SAN to store a robust database, but use a NAS appliance for Internet or e-commerce applications. To bridge the two technologies, new products hitting the market will likely offer the benefits of NAS and SAN.
EMC, not unsurprisingly, is playing into this shift in the market. Back in December, it unveiled a new midrange NAS product along with software that essentially marries NAS and SAN to create a unified storage structure. And such innovations have perked up market watchers' ears. As the rival with the most heft, EMC is the most obvious threat to Network Appliance's NAS business.
Now, some analysts are wondering if EMC's aggressive moves will eat into Network Appliance's fat NAS market share — recently estimated to be close to 50%, or double that of EMC's. Not only do analysts believe EMC is aggressively pricing its new product to undercut the leader's offering, but they also note that EMC has a greater depth of offerings for its customers. And that's becoming more important as data-storage needs become more complex, according to William Hurley, program manager at Yankee Group.
"I would say that the technology is going in the direction that will put increasing pressure on NAS-only providers to enrich services and be more interoperable," says Hurley. "EMC understands that information needs are rather diverse and that one solution or two solutions that are discrete do not meet the demands of today's information infrastructure."
As a result, Network Appliance, which was long applauded for specializing in NAS, is now facing the task of broadening its product line. And doing that is bound to be a lot tougher than just moving the deck chair so it's back in the sun.
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