To: Jack Hartmann who wrote (3299 ) 5/18/2000 9:36:00 PM From: Jack Hartmann Read Replies (2) | Respond to
Network Appliance (NTAP) 69 7/8 +1 1/8: Traders are expecting some good news from NTAP after the close judging by today's price action as the rest of the sector is trading lower. Network Appliance will release Q4 results after the close today and traders have good reason to expect another strong quarter. First Call has a consensus EPS estimate of $0.06, we think a penny upside is probable. Revenue estimates are in the $170 mln neighborhood which would represent a 12% sequential and 87% annual increase; again we expect upside to the consensus revenue estimate as well, possibly as high as $180 mln (100% Y/Y growth). Last quarter NTAP management guided future gross margins down (from 59.4% in Q3) due to competitive pricing and an increased need for including low-margin disk drives in their large capacity systems. We don't think the margin contraction will show up yet due to three indicators: 1) strong demand in NAS and caching driving ASPs higher 2) solid results from the industry competitors that have already released CY2Q results 3) relatively low component costs. Look for GMs to stay north of 59%, if only by a small fraction. Furthermore, despite management's conservative guidance last quarter, as NTAP expands their higher-end, higher capacity filer product line, and caching demand keeps growing, 59% GMs are not unrealistic throughout CY00. Competition in caching will lead to lower ASPs in the near future, but caching systems account for only about 7% of NTAP's revenues. NTAP's higher margin software (15% of revenues) will continue to show sequential sales growth of about 30% for the foreseeable future resulting from competitive product advantages -- their dual protocol (UNIX & NT) filers continue to command a premium ASP. As for the bulk of the business, NAS equipment, the industry remains dominated by NTAP with EMC (EMC) a distant second and early-mover Auspex Systems (ASPX) capturing a declining share of the market. IDC estimates NTAP still holds a 46% stake (vs EMC's 18%) of the $860 mln NAS market, which is expected to grow to $22 bln by 2003. Those market share estimates are always dubious, but another research firm, The Gartner Group (IT), estimates that NTAP holds a 60% share of the burgeoning market. In today's press release, look for these benchmarks to drive NTAP shares higher: EPS of $0.07, sales of $175 mln and gross margins of 59%. Do not be surprised if they top both the revenue and gross margin number as Network Appliance is a company hitting on all cylinders. - Matt Gould, Briefing.com
