Merrill Pulls Back as Network Appliance Story Loses Luster

You can forgive Network Appliance (NTAP Quote) CEO Dan Warmenhoven if he looks a bit distracted these days. In two weeks the company has lost more than $3 billion of market value. In the meantime, and perhaps more significantly, NetApp has lost its biggest supporter on Wall Street.

That supporter would be Merrill Lynch, whose computer hardware analyst Tom Kraemer downgraded NetApp to neutral from accumulate on Wednesday. The news was a kick in the teeth for NetApp, which had already fallen 34% over eight trading sessions as money raced out of the once white-hot Internet infrastructure sector.

With sell ratings rare, a "neutral" remains the kiss of death on Wall Street, even amid the newfound skepticism among brokerages. But the blow was even harsher coming from Kraemer, whose firm had built a reputation as NetApp's most enthusiastic booster. Merrill had co-managed a 1999 offering of 2.5 million shares, and it wasn't too long afterward that Steve Milunovich, then Merrill's enterprise hardware analyst and already a storage bull, started promoting NetApp to clients as a company possessing a "disruptive technology" capable of shaking its industry at the very foundations. ...