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NetApp continues its stellar rise in the storage market

February 17, 2011

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In its third quarter, NetApp said that it is continuing on its meteoric rise against its rivals by growing faster than the market itself, with a 25 percent growth in revenues and a 60 percent hike in profits in the virtualization market.

NetApp is actually making more headway selling storage to VMware customers than VMware owner EMC itself. Overall, revenues grew to $1.27 billion compared to $1 billion in 2010. Net income increased to $172 million contrasting to the paltry $107 million recorded a year ago.

The numbers would have been even higher, but NetApp could not supply enough Flash Cache I/O modules for its new FAS 3200 and FS 6200 storage arrays. Demand exceeded supply by a factor of about two to one, particularly with the 3200 which has had the fastest new product sales ramp in NetApp's history.

It is now estimated that revenues could have been $10 to $15 million higher without this supply chain issue.

CEO and president Tom Georgens said "We are committed to catching up to the demand as quickly as possible."

Revenues rose only 5 percent compared to the previous quarter and NetApp actually missed analysts' revenue estimates of $1.28 billion. NetApp is being largely restrained by the Flash Cache supply constraints, which could affect the final fiscal 2011 quarter where NetApp is estimating revenues will be $1.38 billion and net income will be in a narrow range of about $148 to $171 million.

For its part, EMC is certainly hoping that its new VNX converged CLARiiON and Celerra storage array line will lower NetApp's progress even more, particularly when it adds its block-level deduplication facility to match NetApp's A-SIS later in 2011.

We can expect better SPC benchmark numbers from the VNX later this year. EMC's president and chief operating officer Pat Gelsinger has a focus on Georgens' NetApp and wants EMC to overhaul its arch-competitor in the mid-range storage array segment. But that may be easier said than done, however. The server virtualization and disk storage market is growing rapidly and competition is very strong, and most IT industry observers agree that it will get even stronger going forward.

NetApp estimates that there is an almost 30 percent difference between its growth rate and that of its four largest competitors, using a measure that looks at results over two years. It also believes that it has a 15 percent share of the overall external disk storage market.

Stifel Nicolaus analyst Aaron Rakers estimates that NetApp enjoys about a 12 percent share currently, up from 8 percent in 2010.

Other competitive forces impinging on NetApp's immediate future growth rate include Dell's Compellent, HP's expected downsized 3PAR array and, possibly, Oracle's Sun 7000 ZFS array. But Oracle still has some catching up to do when compared to Dell and HP.

NetApp knows this and is continuing its rapid acceleration to increase its overall market share, either with faster hardware or enhanced software or both. It noted that it faced execution challenges in the EMEA geography which are being focused on by management but EMEA results were fairly healthy.

Revenue there was $450 million, a 35 percent year-over-year increase and a 29 percent increase compared to the previous quarter.

If IBM tells its sales force to sell V-7000 and XIV arrays in preference to NetApp-sourced N Series, then that could put somewhat of a brake on NetApp's growth, although there are still some that may disagree on that. There are unconfirmed rumors that this is an IBM EMEA sales tactic.

And of course, all good things eventually do come to an end and that includes NetApp's long run but when will that long run end? We don't know yet.

But one thing is for sure: NetApp's competition is rapidly taking notes and we'll have to wait and see how effective they are at beating it.

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Source: High Tech News Today.

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