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

To: gingersreisse who wrote (5587)	12/6/2000 3:41:08 PM
From: John F.	Read Replies (1) \| Respond to of 10934

Network Appliance - A Storage-Systems Upstart Faces a New Round of Competition November 28, 2000 Network Appliance A Storage-Systems Upstart Faces a New Round of Competition By Dave Sterman In 1992, James Lau and David Hitz, left their job at AUSPEX SYSTEMS (ASPX) to found a company built around a new idea. Little did they realize that their new idea would grow into a multi-billion dollar opportunity. At the time, computers were built to perform a multitude of tasks. But Mr. Lau and Mr. Hitz realized that the demand for faster access to data would require a new kind of system architecture. So, they started NETWORK APPLIANCE (NTAP) , which would pioneer the development of simplified computer servers that perform just one function at a time, known as network attached storage (NAS) . You use NAS devices every day. Every time you access a file from the Internet, you are connected to a NAS server. Since these servers don't have to handle a variety of other computer processing tasks, they can send the page to you in the blink of an eye. When NETWORK APPLIANCE went public in November 1995, the company's annual revenue was $14 million. Since then, sales have been roughly doubling every year and totaled $579 million in the company's most recent fiscal year, which ended in April 2000. That torrid growth certainly caught the eye of other data storage companies such as IBM (IBM), COMPAQ COMPUTER (CPQ), HEWLETT-PACKARD (HWP) and EMC (EMC) . But try as they may, those tech titans couldn't crack NETWORK APPLIANCE's dominant market position. To this day, NETWORK APPLIANCE still controls more than half of the $1 billion NAS market. But that may soon change. As the market opportunity grows ever larger, competitors are turning up the heat. IDC predicts sales of NAS servers will surge to $7 billion by 2003. Until now, NETWORK APPLIANCE's primary threat has come from storage giant EMC. Despite aggressive attempts to steal market share, EMC has never quite caught up. EMC figured that it held an advantage since it sells data storage hardware and software in one configuration. But EMC's bundled solution is usually more expensive than a cobbled-together solution from a variety of vendors including NETWORK APPLIANCE. "EMC's high-end products are unlikely to match NETWORK APPLIANCE's appliance approach," writes UBS Warburg's Don Young. But in early December, EMC will formally launch a NAS product, code-named "Chameleon," that could finally break NETWORK APPLIANCE's hegemony. And SUN MICROSYSTEMS' (SUNW) recent $2 billion acquisition of COBALT NETWORKS (COBT) should stoke the competitive fires. Adding concern, DELL COMPUTER (DELL) recently announced that it will no longer re-sell NETWORK APPLIANCE's equipment. Instead, DELL will team with MICROSOFT (MSFT) to offer their own NAS product. DELL has a reputation for entering new markets at the low end of the pricing spectrum. That could spell trouble for NETWORK APPLIANCE's remarkable 59% gross margins and 18% operating margins, The moves by EMC and DELL have conspired to put a hammerlock on NETWORK APPLIANCE's shares. In just four weeks, they've fallen from around $150 to close at $63 on Nov. 24. But that hasn't necessarily created a bargain – NETWORK APPLIANCE still trades at 274-times trailing 12-month earnings. To put that in perspective, NETWORK APPLIANCE's earnings are expected to grow just 50% to 60% in each of the next two fiscal years. At this point, analysts hold divergent views on the company's outlook. Bulls point to the fact that NETWORK APPLIANCE has faced the threat of competition every year, but the company still manages to finish with the lion's share of the market. These analysts add that the company's gross margins have held firm, even as new players have entered the market. But bears note that demand for NAS, while still strong, will slow from a former triple-digit rate. And as the overall industry slows, competitors may be more inclined to fight for market share on the basis of price. Shares of NETWORK APPLIANCE could rebound if the company can successfully fend off the new competition. Conversely, expectations for NET APPLIANCE are high, and given its rich valuation the shares could come down sharply if sales and earnings projections aren't met. For Comments, Rants or Raves, email us at tta@multex.com. -------------------------------- The above article can be accessed at ... multex.multexinvestor.com Do a search on NTAP. This free article was posted to the Multex site on 12/5/00, yet it was apparently written on 11/28. Source: The Telecom Analyst.