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NetApp Its Survival May Require a Buyout From Cisco or Oracle

NEW YORK ( TheStreet) -- Without question, NetApp (NTAP - Get Report) and EMC (EMC - Get Report) are the two dominant names in the critical data storage market that is always a top priority within enterprise IT.

Though these two giants have traded neck-and-neck over the past couple of years, however, it would appear recently that Wall Street has made up its mind in that all important question -- which of the two presents the better value?

Nonetheless, for as much as I like EMC's business and what it has been able to accomplish, from my vantage point, NetApp has become a bit more intriguing if for no other reason than the options that its recent valuation represents.

One such option requires the answer to the question, can the market support two data storage names equally within the sector? And if so, will investors ever be satisfied with what will certainly result in shrinking margins in order to increase sales as the cloud takes shape?

As the chart below shows, Wall Street continues to side with EMC and appears more comfortable with the promises that it has made.

For NetApp, since reaching a high on the year of $46.80 on April 3, the stock is down 40% -- remarkably this comes on the heels of the company not only having reported better-than-expected third-quarter earnings results, but also offering an outlook in line with Wall Street expectations.

However, on the heels of its recent fourth-quarter report, I expected investors to see things more clearly. Except Wall Street had different ideas and instead focused more on the company's outlook and less on its actual numbers -- which were better than good. Not only did it report revenue that increased almost 20% annually, but it demonstrated organic growth that arrived in the high single digits, while also showing that it can compete effectively against both EMC and IBM (IBM - Get Report) in sales of its high-end systems.

NetApp also did well from the standpoint of profitability as both its gross and operating margins continue to grow quarter-over-quarter and annually. As noted previously, the story during the announcement was its guidance -- which immediately sent shares tumbling as Wall Street scrambled to digest what the company's management was possibly thinking. However, what was disappointing is that investors appeared unprepared for the outlook although Cisco (CSCO - Get Report) and (just the day before) computer giant Dell (DELL) opted to play guidance conservatively in light of the ongoing fiscal challenges in Europe.
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ORCL $37.74 0.39%
CSCO $27.24 1.50%
EMC $25.81 2.00%
IBM $148.79 -0.17%
NTAP $31.33 1.40%


Chart of I:DJI
DOW 16,790.19 +13.76 0.08%
S&P 500 1,979.92 -7.13 -0.36%
NASDAQ 4,748.3610 -32.9030 -0.69%

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