Can It Overcome The Competition?

Aside from its recent struggles with execution, NetApp must prove it can also distinguish itself from its competition, an area that has also been a source of concern for investors.

Its recent numbers, which have shown declining growth, suggest that investor concerns are correct. However, with data storage being a critical enterprise IT priority, I'd like to think that brighter days are ahead for NetApp if it is able to weather this storm. But it won't come easy.

Along with EMC, NetApp has to battle others, including HP, IBM and Dell ( DELL), all of which are gunning for the same market. Nonetheless, it is NetApp that is somehow perceived to be the loser. Consequently, it is being punished. Its stock has lost almost 40% since April while EMC, a rival it has been in a neck-and-neck race with it all year, goes unscathed. It seems investors have made up their minds that perhaps EMC is the safer bet in terms of revenue prospects in high-end systems.

While it is hard to dismiss EMC's brilliance in execution, it is equally difficult to ignore how discounted NetApp shares have become. I suppose investors are now torn between the two and feel the need to pick one over the other. That implies investors don't believe the market is able to support both companies.

Further complicating matters is that IBM, HP and even a name such as F5 ( FFIV), continue to jump into the enterprise pool.

Bottom Line

I like NetApp and I see it eventually being acquired by an enterprise player such as Cisco ( CSCO) or Oracle ( ORCL) -- even though the latter has come out recently and denied having any interest in such a move.

All that means is now is not a good time. But the advantages NetApp would offer to either Oracle or Cisco makes too much sense to ignore. NetApp stores data and Oracle specializes in data analytics. It doesn't get any better than that.

In the meantime, NetApp has a lot of work to do to convince investors they should believe in its prospects. Also, I wonder if it will be able to leverage its technology in such a way to get its growth back to the double digits.

If not, will Wall Street ever be satisfied with growth in the low single digits? I'm not betting the latter will ever become a reality. For now, while NetApp might be a decent hold. It needs a couple of beat-and-raise quarters in order to prove its value.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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