NetApp Could Give Tech a Pick-Me-Up

SUNNYVALE, Calif. ( TheStreet) -- The tech sector's ongoing recovery may get a shot in the arm later today when storage specialist NetApp ( NTAP) reports its eagerly anticipated first-quarter results.

The Sunnyvale, Calif.-based firm, which recently lost out to rival EMC ( EMC) in the battle to acquire Data Domain ( DDUP) has been attracting plenty of attention recently.

Seen as a rising star of the hardware sector, the company's high-growth profile has endeared it to analysts and investors alike.

"Demand appears to have stabilized and NetApp continues to focus onreducing costs and protecting margins," wrote Bill Choi, an analyst at Jefferies & Company, in a note released this week. "Recent run-up in NetApp's share price largely reflects these positive trends."

NetApp's shares have climbed more than 60% this year, underlining the company's growing status in the tech space. Widely regarded as one of the hottest stocks in the vibrant storage space, NetApp has averaged 28% growth in the last five years, and has repeatedly been touted as M&A bait.

Archrival EMC may have set the tone for NetApp's quarter, recently beating analysts' second-quarter estimates. The storage giant's sales increased more than 3% sequentially, raising hopes for NetApp at a time when investors are desperate for signs of a rebound.

"Almost every large tech company has indicated that order trends are improving quarter-over-quarter and month-over-month," wrote Kaushik Roy, an analyst at Wedbush Morgan, in a recent note. "Revenues from Netapp's biggest Other Equipment Manufacturer (OEM) partner in Europe, Fujitsu, should be up materially quarter-over-quarter as things are settling down."

Analysts surveyed by Thomson Reuters expect NetApp to bring in revenue of $828.3 million and earn 20 cents a share, although there are still some hurdles in the company's path.

"We remain concerned about increased competition and traction with new OS," said Jefferies' Choi, referring to NetApp's forthcoming release of its new OnTap operating system. The analyst nonetheless maintained his NetApp "hold" rating and increased the company's price target from $18 to $22.

Wedbush Morgan analyst Kaushik Roy also warns that NetApp's partnership with IBM ( IBM) could be impacted by IBM's acquisition of storage specialist XIV.

The OEM deal enables IBM to rebrand NetApp storage gear, and accounts for about 4% of NetApp's revenue, although Roy says that this could change.

IBM, for example, recently said that it has racked up hundreds of new customers for XIV, and Roy says that there is a lot of work going on behind the scenes.

"Our own checks are indicating that IBM has a dedicated sales team for XIV and is spending a lot of marketing dollars for XIV," he wrote. "Although we do not see NetApp's IBM revenues to be at risk in the near-term, longer term we are concerned that they may shrink."

NetApp shares rose 22 cents, or 0.97%, to $23.07 Wednesday, as the Nasdaq gained 0.56%.

Written by James Rogers in New York

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