Zeev's Turnips - No Politics Message Board

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Strategies & Market Trends : Zeev's Turnips - No Politics

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To: Softechie who wrote (34759)	2/28/2002 12:27:09 PM
From: Ibexx	Read Replies (1) of 99280

Soundview's SAN market update: Summary We believe fundamentals for Fibre Channel switches and HBAs are healthier than recent stock action suggests. Our inputs on switch and HBA sales have remained largely positive and we remain encouraged about prospects for upside to 1Q numbers. We continue to think that SAN-related stocks should command a multiple premium relative to other areas in tech and that SANs will be one of the stronger IT spending areas this year. How large a premium the stocks deserve is clearly up for debate and a source of volatility in periods where investors fret about multiple risk or the health of the economy. There has been some of each the last two weeks given it remains early in the quarter and news flow has been modest. We do not pretend to know where these names will bottom near term, but believe the upside/downside ratio in the names is favorable at current prices. We think BRCD and EMLX are the most attractive names at current levels. Thoughts on Stock Positioning • BRCD and EMLX are the two names we think investors should buy most aggressively here. Both are the best- positioned companies in their respective segments to capture additional market share. We continue to hear that current quarter business is tracking well for both. • QLGC is also a name we think investors should own, but we would wait for more clarity on the impact of Sun/HDS and Dell/EMC before being aggressive buyers. • We continue to believe MCDTA is at risk of losing share to BRCD upon the latter’s entry into the core switch segment of the market. Gross margin recovery also remains in question. We would rather own the other names. Demand Observations • SANs Remain a Priority for Users – In a weak demand environment with limited budgets, consolidation projects that save money are more likely to get done than projects involving new applications aimed at top-line growth. The two leading uses of SANs have been storage consolidation and backup centralization, both projects that resonate with current user priorities. • Overall Storage Demand – 1Q is typically a backend-loaded quarter and we believe this year is no exception. How well the storage vendors do collectively in 1Q still depends on what happens in March. Concerns about storage demand being weak so far in the quarter have centered on EMC. A weak quarter at EMC does not necessarily entail a weak quarter for switch and HBA vendors for several reasons: 1. SAN-related storage has grown while direct attached storage has declined. 2. Switch and HBA sales are tied more closely to storage volume than storage revenue. To the extent weakness relates to pricing on storage rather than demand, SAN vendors are not affected in the near term. Ibexx

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