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

To: Jacob Snyder who wrote (8429)	6/19/2001 4:35:21 PM
From: SecularBull	Respond to of 10934

Good plan, great buy. I'm slowly adding to my '03 $10s. Have been deploying more fresh cash towards ITWO recently, though. ~SB~

To: Jacob Snyder who wrote (8429)	6/19/2001 7:36:46 PM
From: Sully-	Read Replies (1) \| Respond to of 10934

SmartMoney.com - Stock Watch Storage: The Short and the Long of It By Monica Rivituso EARLY TUESDAY MORNING, Salomon Smith Barney analyst H. Clinton Vaughan issued a note cutting his growth estimate for the data-storage industry. The move knocked 2% to 3% off the stocks of three of the industry's top companies: EMC (NYSE:EMC - news), Network Appliance (NASDAQ:NTAP - news) and Brocade Communications (NASDAQ:BRCD - news). No surprise there. With the exception of a brief rally in April and May (along with the rest of the technology sector), the three companies have been market whipping posts for much of the past year. Since last fall, when EMC, Network Appliance and Brocade each hit 52-week highs, they've plunged 75%, 91% and 73%, respectively. Salomon said to expect revenue growth of 10% to 15% this year, not the 15% to 20% the firm had been talking about earlier. And that was enough to bring out the knives anew. So what, you say? We know: Analyst warnings and downgrades are a dime a dozen these days. But we draw your attention to this one because it illustrates a key point about technology investing in this environment. When sorting through the rubble that used to be the towering technology sector, it's always important to remember one thing: You have to distinguish between real trouble in an industry and problems brought on by the broader economy. Consider that while data storage may be undergoing a growth slowdown due to the overall sluggishness of the GDP, the group still has relatively healthy fundamentals. Contrast that with the telecom-equipment business, where a huge inventory overhang and massive broadband overcapacity haven't only slowed business for companies like JDS Uniphase (NASDAQ:JDSU - news) and Cisco (NASDAQ:CSCO - news) to a crawl but have clouded the future miserably. Yankee Group analyst William Hurley notes that the telecom business is plagued by the sale of used equipment on the secondary market. By contrast, he says, there isn't a huge amount of storage equipment being resold, which indicates that there's still a balance between what customers are buying and what they need. ``As information continues to grow at a rather rapid rate, information storage needs to keep pace with that,'' Hurley explains. ``But because it's a buyers' environment, there have been some rather fantastic deals cut [for equipment].'' What he means by a ``buyers' environment'' is that customers of companies like EMC and Network Appliance have had the upper hand at a time when economic sluggishness has slowed overall spending. With the vendors anxious to cut a deal — any deal — buyers can exact better prices and more aggressive terms. So even if customers are still buying equipment, the near-term ride for this industry will likely be a bumpy one, according to Salomon's Vaughan. He thinks the quarter will be another that's ``plagued with preannouncements and downward revenue, margin and EPS revisions.'' He predicts deteriorating economic conditions are going to continue to affect the fundamentals of storage makers in the upcoming months and make for a ``tough'' summer. That said, however, Vaughan's overall outlook is still encouraging — something we think Wall Street is ignoring. Vaughan said he thinks the industry's long-term growth rate will again rebound above 20% when the economy improves. There's no lousy execution or weak management to worry about, he insists, only difficult markets. ``We see many storage companies exiting the economic pullback in stronger relative positions due to their management teams' ability and willingness to adapt to current economic conditions and, as a result, take market share,'' Vaughan wrote. There are other bright signs as well. One problem that has lingered for the industry is that traditionally, storage products haven't all worked well together. That meant customers who adopted a smorgasbord of storage equipment might have trouble managing their infrastructure. But Yankee Group's Hurley notes that storage makers are starting to solve some of the interoperability complexities, and that will make it easier for customers to integrate existing systems with new storage solutions. As companies like EMC, Network Appliance and IBM (NYSE:IBM - news) succeed on this front, sales should improve as well, Hurley predicts. ``The fact of the matter is that people have not stopped or slowed their vociferous delivery of emails, power-point presentations, aggregation of databases and the like,'' he says. With all of this in mind, EMC and Network Appliance look pretty cheap at current prices. Based on Tuesday's close, EMC was trading at about 33 times trailing 12-month earnings, versus its five-year average of 57. Network Appliance was trading at 64, versus a five-year average of about 140. Brocade is also off its average, but still trades at a trailing P/E of 99 — pretty pricey in our book. Will these stocks rise from here? There's no telling about the short term. But over the long haul, this beaten-down sector sure looks healthier than the market is giving it credit for. biz.yahoo.com Ö¿Ö