NetApp Stock Poised for 10% Gain

The company could get a boost from improving storage hardware sales.
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are two leading storage players that compete with tech giants such as


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A recent

IDC research report

on the external disk storage industry suggests that the storage industry has delivered strong double-digit revenue growth in the first quarter of 2010, after a lackluster performance for almost all of 2009 due to the weak economy.

NetApp saw around a 50% surge in its disk storage revenue compared to 17% industry-wide growth. As a result, NetApp improved its market share from about 9% in the first quartet of 2009 to 11% in first-quarter 2010. We have upgraded the Trefis price estimate for NetApp's stock from $30 to


to reflect the improved outlook for NetApp's storage hardware business. There could be an additional 10% upside to NetApp's stock, if the storage hardware share grows more than we estimate.

NetApp Revenue Drivers

Enterprises have resumed IT spending not only to replace their aging infrastructure, but also to reap cost benefits from virtualization and cloud computing. An increasing number of companies are opting for virtualized data centers and moving toward "clouds," or a shared application infrastructure.

This transformation requires efficient network storage systems, providing additional growth opportunities for storage players like NetApp and EMC.

NetApp has around one-third of its current installed base supporting virtualized infrastructure. It is also ahead of its competitors with its secure multi-tenancy capability, which allows multiple applications or multiple customers to share hardware securely.

NetApp's strength in desktop virtualization, an emerging growth area for storage vendors, is represented by its strong win rate. In its

recent earnings call

, NetApp confirmed that 9 out of the 10 largest New York banks have selected its storage solutions to support their virtual desktops.

Strong Sales Place NetApp Ahead of Rivals

With strong demand for its storage hardware in Q1, NetApp has moved ahead of HP, Dell and Hitachi in terms of market share. It is now in close proximity with IBM and a further gain in share will place it next to EMC, which is the leader in the storage market.

We have increased our forecast for

NetApp's storage hardware market share

(in terms of Gigabytes sold) from about 9% to about 10% for 2010 with share expected to rise further over our forecast period, resulting in 10% upside to our earlier price estimate for NetApp's stock.

You can modify the forecast below to see an additional 10% upside to NetApp's stock, if the company's storage hardware market share were to increase 1% more than our estimate for 2010.

You can see

our complete model for NetApp's stock here



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