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NetApp Building Cloud, Storage Capabilities, Value

Stocks in this article: NTAP EMC IBM HPQ CSCO VMW SAP

The conservatism in managements guidance tells me that NetApp doesn't expects enterprise spending to pick up much in the second half of the year, which goes against the optimism that another enterprise titan like Cisco (CSCO) demonstrated in its recent quarter, during which CEO John Chambers spoke favorably about an imminent IT recovery.

Chambers understands that CIOs can't starve their businesses forever -- not if they want to compete effectively. The fact that both NetApp and EMC are growing at the rate in which they are despite the current weakness in IT spending suggests that enterprises have no interest in keeping up with their own data storage.

Given NetApp's strong showing in its fabric-attached storage and E-series line of products, the company's excellent strategy and design is begin to appeal more to its customers. But I also believe that the strength of NetApp's assets will soon begin to appeal to Cisco as an acquisition candidate, especially given NetApp's strong cash flow performance, which helped the company's 25% sequential jump in cash, which ended the quarter at $455.6 million.

Cisco, which has been shoring up its enterprise/cloud capabilities with recent acquisitions such as Cariden, Meraki and Intucell, which focuses on efficient data delivery, could really benefit from NetApp's industry-leading flash portfolio storage architecture.

What's more, given NetApp's recent partnerships with industry leaders such as VMware (VMW) and SAP (SAP), there are now plenty more reasons for Cisco, which has $47 billion in cash to start thinking about NetApp, which has a market cap of less than $14 billion.

For now, though, NetApp is operating with long-term shareholder value as its main objective. The company announced that it will increase its current stock buyback program by an additional $1.6 billion, which means that the company plans to buyback approximately $2 billion worth of its common stock during the course of the next 12 months. This is while management also kicked off a dividend payout of 15 cents per share, the first of which will be paid next month.

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