Does any one know if Network appliance (NTAP) is a competitor to EMC? I'm Having difficulty understanding the alliance NTAP set up with Dell in the file storage area....Thanks to any one that can help.
mike.
you wrote this over a month ago, but i think the question's still valid. while still tiny relative to EMC (only 450 employees and a market cap of $2.5B), network appliance is growing like a weed: revenue and earnings at a 70% clip with a three-digit P/E to boot.
while i'm by no means an expert, from what i gather, the agreement with DELL is an OEM which enters NTAP into the windows NT (or 2000) market which previously was only into unix. under the agreement, DELL will sell NTAP's product under their own name. NTAP also has a similar agreement with fujitsu.
NTAP's main product is NetApp, a suite of network storage servers or what they call "filers." if you liked SAN, try on NAS (network attached storage). these filers are designed for high-traffic, data-intensive networks and are used by ISPs, such as AOL and demon internet (UK's top provider), and corporate intranets. 3com, cisco, netscape, and yahoo! are among their customers.
perhaps gus could chime in too ...
-chris.
from an investor article i saved a month ago.
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Posted 11/27/98
Network Appliance: New tiger in the race for space
With a new deal to sell data storage "appliances" to all Dell business customers, the trailblazing mid-cap is burning up the track.
By Tricia Serju-Harris
In the booming market for computer data storage, space is the final frontier. And one of the leading pioneers today is Network Appliance (NTAP). Since bursting into view six years ago, the Santa Clara, Calif., company has carved out a lucrative niche by creating new ways to speed up access to the vast data found on the exploding number of corporate disk drives.
Even though the company's stock already is up 190% over the past 12 months, the voyage may be just beginning for investors. Information analysts at research house Dataquest say its market will grow from $900 million in 1998 to more than $6 billion in 2002 as network-attached storage technology increasingly becomes adopted by a greater number of businesses.
To grab some of that growth, Network Appliance this month announced that it had signed an original equipment manufacturer, or OEM, agreement with leading PC seller Dell Computer (DELL). The company made its name in the Unix-network market; these will be its first available to the Windows NT and Windows 2000 markets. Dell will begin selling Network Appliance's storage products next year under the Dell brand name.
"Network Appliance snared what must be considered the mother of all partners," said Merrill Lynch analyst Steve Milunovich, in a glowing research report. Added Philip Rueppel, a research analyst at BT Alex. Brown: "This deal expands Network Appliance's distribution and takes their products and technology into the Windows-only server space."
Let's take a closer look.
A huge market -- and it's growing
Revenues are on fire. On Nov. 17, Network Appliance reported quarterly revenues of $65.8 million, a 71% increase from a year ago, for the fiscal second quarter. Net income for the quarter was $8.4 million, or 22 cents a share. That's also 71% better than a year earlier, and a couple of cents better than what analysts had forecast. To celebrate, the company announced a 2-for-1 stock split to be paid in December.
The agreement with Dell will add revenues to the company without cannibalizing its current momentum or current business, Rueppel said. "It's a huge market and it is growing rapidly," he said. "Depending on how you define the market, Network Appliance is either No. 1 or No. 2. They are certainly one of the top players in the attached-server space."
For its role, Dell will enter an area of the market where it was lacking products. In return, the computer maker will broaden the market for filers based on Network Appliance's Data ONTAP software and standards-compliant hardware.
Network Appliance has gone from supporting seven gigabytes of storage to 1.5 terabytes of data, the equivalent of saving about 26 million pages of print.
Appliances relieve the bottlenecks
Here's what Network Appliance's devices do: Imagine having a business that uses both Unix and Windows operating systems. A bottleneck can form if each group of users needs to access the same data on the same network. Instead of putting all that information on one group's hard drive, Network Appliance allows a company to attach data storage devices onto the network. These "filers" -- breadbox-sized appliances that cost $30,000 to $500,000 and store vast amounts of information such as banking records or employee benefit files -- then can be accessed quickly by all the users on the network from their own computers.
Traditional file servers are relics next to appliances. They use the storage that's physically inside the server. It's a concept that works well for running applications and allowing people to have access to their data. But when you try to add workgroups, departments and more applications, the system gets clogged.
In addition, taking the appliance approach bumps up Unix performance two to 10 times that of traditional file servers.
Network Appliance's filers keep it simple. The small appliance typically can be installed in less than an hour, and there are about 30 system commands compared to hundreds of commands required by traditional systems. One feature, called Snapshot, provides automatic online copies of an entire file system without duplication of the underlying data. Such features simplify administration and enable more productive uses of time.
Demand and processing power are growing. Network Appliance has gone from supporting seven gigabytes of storage to 1.5 terabytes of data, the equivalent of saving about 26 million pages of print. The company also boosted the speed of its products, from 400 operations per second to 7,500 operations per second.
Caching market could hit $4 billion
Network Appliance even speeds up Web surfing. A second segment of the company is its Internet-caching software. Like filers, these programs store frequently requested information, such as popular Web site addresses, on a network. As a cached file is requested the information is easily accessed, speeding up delivery to the end user. The company launched its NetCache product line in December. It accounts for less than 5% of sales. But industry researchers say the market for caching products may explode from about $50 million last year to about $4 billion by 2001.
The company was founded in 1992 by James Lau, Michael Malcolm and David Hitz to serve a niche in the computer-storage market. Since then, it has attained a market cap of $2.3 billion. Chief executive Dan Warmenhoven joined the company in October 1994 from Network Equipment Technologies, a wide-area-network supplier. He also worked in management roles at Hewlett-Packard (HWP) and IBM (IBM).
"They had a vision for the marketplace and had defined a product category," Rueppel said. "The market developed just the way they thought it would."
Clients already include many Fortune 500 companies, such as Yahoo! (YHOO), Siemens, Lockheed Martin (LMT), Cisco Systems (CSCO), Motorola (MOT) and Texas Instruments (TXN).
One of the company's closest competitors is Auspex Systems (ASPX), which targets higher-end storage markets. But that company has lost ground against Network Appliance. Sales growth has slowed for Auspex in the past four quarters. The company has a market cap of about $85 million compared with Network Appliance's $2.24 billion.
To be sure, bigger competition is on the horizon. EMC Corp. (EMC), with a market cap of $33 billion, introduced two new products on Nov. 4 as part of a multiyear strategy for creating networks of low-cost data storage devices. Other storage hardware and software companies with a larger share of the market than Network Appliance include Seagate Technology (SEG), Quantum (QNTM) and Storage Technology (STK).
Analysts are bullish
Yet it seems Network Appliance was destined to make its place in space. It went public at $7 a share on Nov. 24, 1995, closing that day at $13.50 a share -- a near double well before the Internet was a household word. In October, the stock corrected along with the rest of the market, trading low at $34 from its previous high of $61. But Rueppel says there was nothing fundamental involved in the decline. By Nov. 18, the stock hit a trading high at $73.
"The stock had regained most of its value before we heard of the Dell deal," he said. "The existing business was still growing upwards of 60% year over year with no issues in sight."
Rueppel recommends the stock with a "strong buy" rating. For the fiscal year ending April 1999, he's looking for $274 million in revenues and $33 million in net income, or 87 cents a share. That would represent a 50% growth rate year over year at a time when the Standard & Poor's 500 companies are expected to grow 11.4% annually by 2000. "I forecast a 40% long-term growth rate. The market is big and they will continue to take shares," Rueppel said, noting that his numbers did not include the deal with Dell. "The technology and management that got them where they are today will continue to help grow them into a much larger company in the future."
Other analysts are bullish on Network Appliance. Prudential Securities and PaineWebber began coverage of the company with "strong buy" and "buy" ratings, respectively. Merrill Lynch and Tucker Anthony recently raised their ratings as well. About 90 mutual funds, 17 banks and seven insurance companies held the stock as of September. Among them are Fidelity Growth Company, Morgan Stanley Dean Witter Strategist B and Mellon Bank Corp.
Still, the party could end abruptly. Competition from powerhouse EMC and other storage-device companies offer one area of uncertainty for Network Appliance. Until then, however, this looks like it's set up to make some very good memories. |
