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

To: DownSouth who wrote (417)	11/5/1998 7:06:00 AM
From: riposte	Read Replies (4) \| Respond to of 10934

Dell/NTAP DownSouth - I'm sure it'll drive the price up somewhat today. For fun, let me play devil's advocate for a few minutes, and pose this question: For the long term, is this REALLY such a great deal for NTAP? First, in the big box arena that I imagine NTAP sells most of their units into, Dell is not the "Big Dog". In an incredible stroke of luck, I came across the September 28, 1998 issue InformationWeek last night while cleaning up around the house. The cover story is "Can Dell Scale?". It's a very good article, and it addresses Dell's current weakness at the high end. I just did some digging, and find that it's available online: techweb.com Second, in that article, it says "It's clear, however, that Dell isn't prepared to jeopardize its 22% gross profit margin and 60% profit growth to barge into the data center." Continuing the logic, this means that NetApp will be selling to Dell at a great discount to what they would get otherwise. If NetApp filers are so outstanding, wouldn't customers seek them (NetApps) out anyway, since there would be little competition? Can they afford to lose that margin? Third, according to the new reports I've seen, the NetApp boxes will be branded as "Dell" boxes. NetApp loses its ability to build brand recognition, and, in fact will be competing against themselves at Dell shops. On the plus side, with Dell, they have a new and aggressive sales force pushing their product. I imagine that, all things considered, more NetApp built filers will be sold with the Dell arrangement than without. This should allow them to bring unit costs down somewhat, and hopefully regain through normal channels some of the margin they lost when OEMing to Dell. Also on the plus side, I've seen the guesstimate that this market is going from $900 million now to $6 billion by 2002, so there's plenty of room to grow, Dell or no. Again, this is just thinking out loud. Right now, I'm wishing that I had bought more (a LOT more!) than I did when it was $44 (of course, it went lower almost immediately after I bought it!). Go NTAP, etc. etc. Steve