NetApp (NASDAQ:NTAP), which competes with EMC (NYSE:EMC), has reported market share gains in its storage market, driven by strong sales for low-end as well as high-end storage hardware. These gains have mainly come at the expense of players like HP (NYSE:HPQ), Dell (NASDAQ:DELL), Hitachi, and IBM (NYSE:IBM).
NetApp makes money by selling storage hardware and software primarily to small and medium sized businesses. We estimate storage hardware constitutes close to 23% of the $30 Trefis price estimate for NetApp’s stock. We expect that NetApp will continue to gain market share in the storage hardware market as a result of demand from medium-sized business and cloud storage providers.
Storage Market Share to Rise to 10%
We expect NetApp’s storage market share to rise from 8.5% in 2009 to 10% by the end of Trefis forecast period.
There are two main factors that are driving growth in NetApp’s market share:
(1) Demand for Low-end Storage Hardware from Medium Sized Businesses
We estimate that NetApp’s storage hardware market share has increased from 8% in 2008 to 8.5% in 2009 driven mid-sized businesses upgrading their data center IT infrastructure.
With more medium-size companies embracing virtualization to make data storage efficient and economical, NetApp’s storage hardware (which is highly compatible with VMware’s virtualization software) will continue to do well.
In addition, NetApp, Cisco and VMware have recently come together to develop a product that will solve data security issues related to virtualized infrastructure. We believe this collaboration will further benefit demand for NetApp hardware.
(2) Demand for NetApp’s High-End Storage Hardware Cloud Service Providers
There is rising demand for high-end storage hardware from cloud-service providers as cloud storage becomes increasingly used by businesses. Furthermore, NetApp has introduced it Performance Acceleration Module (PAM) technology which makes its high-end storage perform even faster.
More than 10% of NetApp’s hardware shipped is built on PAM technology, and we believe this shift will drive growth for NetApp’s high-end storage hardware in the future.
You can modify the forecast above to see how NetApp’s stock price would be impacted if it were to gain more share in the hardware storage market than we estimate.