NetApp’s Targets Virtualization With Akorri Acquisition Adding 20% Upside Potential
NetApp (NASDAQ:NTAP), the third largest player globally in the external disk storage market, recently announced that it would acquire Akorri Networks, a virtualization software company in an “all cash” deal though the amount was not disclosed. NetApp creates innovative storage and data management solutions for small and medium-sized companies around the world. It competes mainly with EMC (NYSE:EMC), IBM (NYSE:IBM), HP (NYSE: HPQ) and Dell (NASDAQ:DELL) in the external disk storage systems market.
The announcement sent NetApp’s stock higher and is generally perceived as a terrific deal for NetApp. It will position NetApp to better compete with EMC, IBM and HP.Below we quantify the impact of Akorri acquisition on our $64.48 Trefis price estimate for NetApp’s stock, which is about 10% above market prize.
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Importance of Virtualized Infrastructure and Increasing Competition
Over the past few months, we have discussed the increasing adoption of cloud and virtualized infrastructures by organizations around the world and how major storage players like IBM and HP are extending capabilities to cater to this demand. (See IBM’s Middleware Dominance Will Help it Serve the Cloud, IT Upgrades, Cloud Computing Boom Boost EMC)
Given the high adoption of virtualized environments as well as increased competition among the service providers, it has become important for competing firms to acquire additional tools and capabilities for management of an extended virtualized environment. Additionally, the fact that the storage vendors could tie their storage offerings into their integrated virtualized infrastructure offerings further amplifies the strategic importance of virtualized infrastructure and acquisitions made in the segment for existing players. [1] (See HP Emerges as Victor over Dell in Battle for 3Par)
Akorri Acquisition Expands NetApp’s Offering
One of the core propositions of virtualized infrastructure is scalable availability of IT resources to different operations running in the organization which can be metered and billed accordingly. The ability to accurately predict and manage performance and capacity requirements has been a common obstacle for many customers wanting to transition to a virtualized environment. Akorri acquisitions extends NetApps ability to provide customers with comprehensive tools to automate and analyze their shared IT infrastructures, efficiently deliver on service levels, and respond to rapidly changing business needs.
Akorri also further strengthens NetApp’s data management capabilities to achieve greater quality of service and performance in their virtual and cloud environments. With these enhanced capabilities, customers can accelerate their transition to a shared IT infrastructure. [2]
What it Means for NetApp’s Storage Share
We believe the acquisition will help NetApp as bulk of the storage demand is expected to arise from shift to virtualized infrastructure in the future. (See How NetApp Benefits from Cloud Demand) With best-in-class management solutions for its virtualized storage environment offerings, NetApp stands to gain share in the storage market.
We estimate there could be an upside of 20% to our $64.48 Trefis price estimate for NetApp’s stock if its share in the storage market increases to 16% by the end of our forecast period as against our current estimate of 13%.
Drag the trend line in the chart above to see the impact of various storage share scenarios on NetApp’s stock value.
Our complete analysis of NetApp’s stock is here.
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