From tomorrows IBD (Cover Story):
Feature Story
Thursday, August 31, 2000
Network Appliance Sets Its Sights
On Kingpin EMC Over Data Storage
By Steve Watkins
Investor's Business Daily
Pundits call it the most "disruptive" technology out there.
Network Appliance Inc.'s computer data storage products are so disruptive, analysts say, that they may pose a challenge to venerable EMC Corp., the data storage leader and a longtime darling of Wall Street.
"We think it could be another EMC," said Steven Milunovich, analyst at Merrill Lynch.
How? Network Appliance's products change the way business is done in its field, watchers of the Sunnyvale, Calif.-based company say. Its storage devices are separate appliances from the main server. That allows for more efficient storage without slowing the rest of the system.
"We do for local-area storage what Cisco (Systems) does for wide-area networks," said Tom Mendoza, Network Appliance's president.
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In fact, analysts say the only other area of storage that's as hot is the ability to keep data on the Internet one click away, says Robert Gray, research director of storage systems at International Data Corp. Known as caching, that's Network Appliance's other area of expertise.
"They're in leadership positions in two of the hottest parts of the storage market," Gray said.
Network Appliance and EMC are duking it out for the attached storage market, one of two major types of housing data on networks. Sun Microsystems Inc. <javascript:popup=window.open('../smartselect/SmartSelect.asp?x=t‚wƒq„{…','SmartSelectPop','width=580,height=400,directories=no,status=no,location=no,toolbar=no,scrollbars=no,resizable=yes,menubar=no,copyhistory=no,alwaysRaised=0,dep> also is becoming a key player there, Gray says.
EMC is the biggest player in computer storage. It dominates storage area networks, the other part of the market, and has 10 times the sales of Network Appliance.
Geoff Keeling, co-portfolio manager for the AIM Large Cap Growth Fund, which owns Network's stock, says Network Appliance wins most contracts when it goes head to head with EMC. That's about 25% of the time. It has a better product and the advantage of being the pioneer in the field. But competition is a big challenge.
"The market's growth has really attracted a lot of competitors," Keeling said. "EMC is really focusing on it."
Rather than keeping its eyes on the competition, Network Appliance is focusing inward.
"We have a strong culture, with a belief that we're going somewhere," Mendoza said. "When you're hiring a lot of people, you have to keep that."
Network Appliance pioneered attached storage when it was founded in 1992. That market reached $860 million in sales last year, Gray says. He expects it to nearly double this year to $1.7 billion and reach $6.6 billion in 2003.
Network Appliance won't branch out too far from its main business, Mendoza says. Instead, it will likely expand in content management, where it already has one product, known as NetCache.
"I think it would be a mistake to get defocused," Mendoza said.
The rise of streaming video on the Internet and other growth on the Web has driven the storage boom.
The two key types of network storage work separately from the main server. Combined, the two hold just a small part of the data storage business, says Dane Lewis, analyst at Robertson Stephens.
"Both are an improvement over the direct attached model," he said.
Direct attached storage refers to the practice of storing data and processing power on one server. Many companies still do that.
Network Appliance's stock fell by 28% in one week earlier this month. Computer-memory company stocks plunged along with most tech stocks amid interest-rate concerns. But it's since rebounded to within 10% of its high.
Network Appliance handles Yahoo Inc.'s e-mail system, the world's largest. That shows it can handle a vast amount of data. The system also costs less than direct attached storage. It cuts down on the number of servers and tech pros a company needs to employ.
"That says a lot about our reliability," Mendoza said |
