NetApp Points Way to Storage Upside

SUNNYVALE, Calif. (TheStreet) -- NetApp's(NTAP Quote) strong second-quarter results Wednesday reflect the growing strength of storage stocks as companies reopen their corporate coffers.

Last month, for example, tech bellwether EMC (EMC Quote), also beat Wall Street's estimates, and there are high hopes for switch maker Brocade(BRCD Quote), which reports on Tuesday.

"The excellent results from storage vendors NTAP and EMC add to our belief that Brocade will announce good results next week," wrote Kaushik Roy, an analyst at Wedbush, in a note released Thursday. "Storage spending is on the rise."

With companies wrestling with ever-growing volumes of data, it makes sense that storage is one of the first areas to reap the benefits of an IT-spending rebound, a fact that boosted NetApp's results.

The storage maker, which partners with virtualization giant VMware(VMW Quote), doubled its profit in a fast-improving business environment. NetApp also grew its sales 9% sequentially.

"The economy continues to show increased stabilization, and the predictability of our close rates continues to improve," said Steve Gomo, the NetApp CFO, during a conference call late Wednesday. NetApp's public sector and European businesses were both strong during the quarter, he added.

NetApp also issued bullish third-quarter guidance of $935 million to $955 million, well above analysts' estimate of $921.59 million. Excluding items, the company expects earnings of 36 to 37 cents a share. Analysts surveyed by Thomson Reuters have predicted earnings of 36 cents a share.

The numbers were not completely out of the blue. NetApp bust out its first guidance for nine months during its recent analyst day, signaling a much-improved IT spending environment.