NetApp: Under-appreciated and Ripe for Buying
Ashish is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
We believe that NetApp (NASDAQ: NTAP) is the most focused storage vendor currently in the market. Its “one operating system” approach to unified storage provides simplicity and has resulted in share gains over the years. We expect the company’s best-of-breed product approach to continue to win share despite increased competition from server suppliers like HP (NYSE: HPQ) and Dell (NASDAQ: DELL), as well as EMC (NYSE: EMC). As NetApp stock has declined by 21% in the last six months, we believe that the stock offers attractive risk/reward prospects and recommend it as a buy.
Partnership with Fusion-io Key to High-End Storage Market Penetration
Fusion-io (NYSE: FIO) and NetApp recently announced a joint-partnership, though any new product has not yet been announced. We believe that this partnership provides NetApp the access to automatically move workloads to the in-server Fusion-io PCIe cards, when the data requires higher performance. Alternatively, Fusion-io will have the access to leverage NetApp’s data protection functionality to create snapshots of the data on their PCIe cards and replicate it back to a NetApp storage array. We believe this combination is NetApp’s “ticket-to-ride” to the high-end storage market and might enable NetApp to participate in deals that it otherwise would have been blocked from (due to the lack of a high performance solution). While the new product has not yet been announced, we expect it to be announced as early as the upcoming October quarter.
Clustering Ability Could See a Prolonged Adoption Cycle
Data ONTAP 8 improved data management for large installations, but it is the move to the ONTAP 8.1 Cluster-Mode that in our opinion takes NetApp to the next level. Clustering allows close-to-linear scaling, critical for cloud applications and also potentially getting NetApp into the EMC high-end stronghold. Cluster-mode allows parallel NFS (pNFS) operations by breaking up the metadata, data, and control paths, thus removing the single controller bottleneck. We believe that the move to cluster-mode is a big decision and could see a prolonged adoption cycle.
NAS Market Might Grow Faster than Expected
In the past, NAS provided ease-of-use and flexibility but a lag in performance. Now, NAS remains less expensive to operate and the performance penalty has declined with the increased use of flash cache, and the introduction of scale-out NAS. While the extremely low-latency (online transaction processing) applications will still be staying on SAN, we believe that the rest of the SAN real estate will be open to NAS. With the users going for best-in-breed functionality, we expect to see more advanced storage users converting to NAS and believe that both EMC and NetApp should benefit from the increased use of NAS.
The Bottom Line
We believe that NetApp can gain share at the expense of the server OEMs with the broad adoption of NetApp’s ONTAP 8.1 cluster-mode architecture. We also believe the company’s partnership with industry-leading flash vendor Fusion-io could provide it with an opportunity in the high performance solution market. As NetApp trades at a dismal low forward PE of 13.17, we believe that it provides a window of opportunity for long term investors and hence rate it as a buy.
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The article was Co authored by Rahul Agrawal and Ashish Sharma. Both have no positions in the stocks mentioned above. The Motley Fool owns shares of EMC. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.