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Investment Overview for NetApp (NASDAQ:NTAP)
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Below are key drivers of NetApp's value that present opportunities for upside or downside to the current Trefis price estimate of NetApp:
Storage Hardware
- Storage Hardware Market Share: We currently forecast NetApp's market share of the total storage market (in Gigabytes), to increase from about ~13% in 2012 to ~14.5% by the end of the Trefis forecast period. However, there could be a 10% upside to the Trefis price estimate if NetApp's market share were to grow at its historical growth rate of 1% annually, reaching 20% by the end of the Trefis forecast period.
- Storage Hardware Gross Margin: We currently forecast that the Storage Hardware gross margin will remain flat at its 2011 levels. Historically, the gross margins have decreased from 48% in 2005 to 41% in 2008 before rising sharply to 56% in 2010 and falling back to 50% in 2012. There could be 20% downside to the Trefis price estimate if margin were to gradually fall back to 2005 levels of about 48%.
For additional details, select a driver above or select a division from the interactive Trefis split for NetApp at the top of the page.
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NetApp makes money by selling storage hardware and storage software to medium and large-size businesses. NetApp's storage hardware helps customers manage data efficiently and keep the information available and secure. The disks are used for large, data-intensive applications like e-mail, inventory, supply chain, backups and regulatory & compliance information. NetApp's storage software enables customers to use all features and functions related to data storage. Software ships along with the hardware system but is priced separately. Features enabled by NetApp's software include back-up and recovery, replication and retention.
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NetApp Gaining Share in Storage Hardware Market
Over the years NetApp has witnessed an increase in its share of the external disk storage market. It increased from around 6.5% in 2005 to ~13.5% in 2012 making storage hardware the most valuable division of NetApp.
High Profit on Software Sales
NetApp sells licenses for the software used along with NetApp storage hardware. Buyers of NetApp storage software and hardware are primarily corporate IT departments and datacenters that have to store vast amounts of user-generated data.
In addition to the initial software license, NetApp sells maintenance contracts for software updates, patches and support. We estimate that NetApp has over 90% gross margins on the sale of its software products, licesnse and maintenance combined.
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Falling Storage Hardware Prices and Rising Volume
The storage hardware industry is characterized by a decline in dollars earned per Gigabyte (GB) as well as rising volumes of storage sold. We estimate that, in 2012, on average, NetApp will sell each GB of storage for $1 in 2012 which is a ~30% decline from 2011.
Trefis Forecast Rationale for Storage Hardware Market Share (of Gigabytes)
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${forecast} refers to NetApp's market share of Total Storage Capacity sold (in Gigabytes) globally.
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${forecast} has increased from 6.5% to 8.5% from 2005 to 2009. In 2012 NetApp was able to capture more of the market and its share reached ~13.5%. We believe NetApp will continue to gain market share going forward reaching ~14.5% by the end of our forecast period.
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Trefis considered the following three factors for its forecast:
- NetApp OS is hardware independant:
- NetApp has a single operating system, "Data ONTAP", across all its hardware platforms including NAS, high-end SAN and low-end SAN. We believe a single operating system makes it very convenient for customers to switch from one type of technology to another as their storage needs grow (example upgrading from NAS to SAN). We believe this provides NetApp with a key differentiating factor.
- Advantages of NetApp's unified storage strategy:
- This strategy has been very successful in the market and has enabled it to gain a leadership position in the unified storage market. A unified storage system supports NAS, Fiber Channel SAN and iSCSI SAN in a single system.
- Easier deployment: Several applications can be provisioned on a single array
- Simplified management: Customers can manage all of their storage resources from a single console
- Reduced total cost of ownership: Customers do not need two separate storage networks for their block-level and file-level data, lowering their initial capital expenditure. In addition, operating expenses are lower as less support staff is required
- Access to all software features and functionalities: Customers can utilize features such as data backup and retention, provisioning, automated tiering, among others
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NetApp's key customers are Small and Medium Enterprises (SMEs) which is a fast growing segment within storage
- The unified storage market is primarily driven by SMEs as the performance requirements of SMEs are less stringent than those of large enterprises
Back to Company OverviewHow Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on:
DCF MethodologyView All Help Topics