According to data released by research firm IDC, the worldwide disk storage systems revenue increased 8.5% year over year to $7.6 billion in the third quarter of 2011. NetApp (NASDAQ:NTAP), the third largest player in the external disk storage systems market, saw its share increase to 12% in the quarter, up from 11.5% in third quarter last year. However, its share declined sequentially from 12.8% in the last quarter. On the other hand, NetApp’s rival and market leader EMC (NYSE:EMC) witnessed a 2.7% jump in its market share on a year on year basis but was flat sequentially. 
We currently have a $46.73 Trefis price estimate for NetApp, about 25% above market price.
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Market Growth to Slow Down
While the third quarter of 2011 saw a strong quarter in Enterprise Storage, the trend of increased spending during the economic recovery period, specifically on high-end systems has started to slow. NetApp’s stock has already taken a hit this year with the stock down as much as 35% year-to-date. A market contraction would be especially harsh for NetApp as the firm derives over 45% of its value from the sale of storage hardware, as per our estimates, well more than competitor EMC which is more reliant on storage software and services.
If NetApp fails to expand its share as the market contracts there could be a significant downside to our $46.73 Trefis price estimate for NetApp.
Potential Acquisition on the Cards
With NetApp’s momentum slowing, rumors of a potential acquisition of CommVault Systems have started to appear. CommVault is a New Jersey based firm which specializes in backup and recovery software that makes it cheaper and easier to handle data. As EMC extends its lead over NetApp in both the storage hardware and software markets, analysts are speculating that it might be time for NetApp to put its huge cash pile to use. 
Quantum Corp., a California based firm which handles backup, deduplication, recovery and archiving of data, is also being touted as a potential takeover target and would make “tremendous sense” for NetApp according to ISI Group.Notes: