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Technology Stocks : Network Appliance -- Ignore unavailable to you. Want to Upgrade?

To: Boplicity who wrote (3181)	4/28/2000 8:17:00 AM
From: John F Beule	Read Replies (2) \| Respond to of 10934

From Mark Johnson's IFC: Network Appliance siliconinvestor.com Randall Williams-Gurian, Editor of Undervalued Stock Ideas, usistocks.com provides the following commentary on Network Appliance (NTAP 67 1/2). Undervalued Stock Ideas is a quarterly publication that specializes in technology stocks. An annual subscription to his newsletter is $125. Below is his write-up. The market for enterprise-level mass storage is exploding! Once upon a time, digital data storage needs were not great and were almost exclusively local - easily stored on hard drives. Now, in the information age, with worldwide commerce and communication, Internet storage needs are no longer local and are certainly not modest. According to Dataquest, storage demand from Forbes 500 companies is doubling every year. In the next five years, over 75 percent of all expenditures on computer hardware will be made on storage. At present, "captive" or "tethered" storage holds 95 percent of the market. This type of storage includes disk drives and arrays linked to client computers in a "master-slave" configuration. This sort of arrangement adds cost, complexity and traffic to a network, but was necessary because the network backbone speeds were too slow to make linking storage devices directly to the network practical. This is no longer the case. Gigabit ethernet is becoming standard and 10 gigabit is coming fast. Network Attached Storage (NAS) is not only viable, it is predicted to rule the market within five years. In the NAS model, storage becomes primary and the computers become satellites, just like a printer that can exist anywhere on the network. Adding storage is simplified and the systems controlling the storage are dedicated and optimized for that purpose. The management of such a system is greatly simplified over a master-slave arrangement. These storage appliances, frequently referred to as "filers", are reliably easy-to-use devices that plug directly into the network, bypassing server input/output bottlenecks and providing users with faster access to data. The dominant player in NAS, with approximately twice the market share of its nearest competitor, is Network Appliance (NTAP). Network Appliance was visionary in its early focus on the NAS market, and has earned accolades for its platform of independent filing systems. NTAP's customers include Yahoo!, Cisco, Texas Instruments, Oracle, nearly every major Internet portal and a large proportion of Internet service providers, such as Mindspring and Earthlink, as well as a large number of Fortune 500 companies. NTAP competes with every company that sells high-end mass storage, including EMC and IBM. Storage Area Networks (SAN) could be considered a competing technology, but the trend is toward a hybrid that combines the ease of operation of NAS with the robust backup and recovery capabilities of SANs. Network Appliance has entered into collaborations with the two dominant enterprise storage management software companies, Veritas and Legato, to further develop NAS/SAN hybrid storage networks. In a February press report, Network Appliance's CEO, Dan Warmenhoven, stated that the company has an annual growth rate of 80 percent over the past five years, with an anticipated growth rate of 100 percent or better over the next year and a half. Furthermore, Warmenhoven sees the company maintaining or increasing its market share of the NAS market, which currently stands at 41 percent. In the latest earnings report, NTAP showed better than 100 percent growth in both revenues and earnings as compared with the previous year. This company tells a story of remarkable demand for its products and a rapid ramping up of production capability. Network Appliance's second product line is a caching product called NetCache. Caching is a technology that allows a device to store frequently accessed digital information closer to the end user. Caching also provides faster access to web site information while reducing traffic over the Internet backbone. Warmenhoven estimates that the caching market was approximately $100 million in 1999, and is expected to become a several-billion-dollar market within two years. Network Appliance is a co-leader of that market, with a 28-percent share, and expects better than 100-percent annual growth going forward. Network Appliance is well on its way to becoming one of the premier technology companies of this decade. Over the short-term, their shares have been vulnerable in a weak market. Over the long-term, NTAP is a solid investment. Our suggestion is to scale into this position. Buy a small stake at current levels with the idea of adding shares on future dips. We are setting a one-year price target of $140 for NTAP.