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Investment Overview for NetApp (NASDAQ:NTAP)
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 Market Share: We currently forecast NetApp's market share of the total storage market (in Gigabytes), to stay at around the 11% mark through 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 about 1% annually reaching 14-15% by the end of the Trefis forecast period.
- Storage Products Gross Margin: We currently forecast that the Storage products gross margin will improve from its historical figures. Since 2009, the gross margins have oscillated from 58% in 2009 to 59% in 2010 before declining sharply to 51% in 2012 and finally increasing to over 56% in 2014. The figure fell back to just under 50% in 2015 and 45.7% in 2016. There could be 10% downside to the Trefis price estimate if the adjusted gross margin were to continue to fall back to around 40%.
For additional details, select a driver above or select a division from the interactive Trefis split for NetApp at the top of the page.
NetApp makes money by selling storage hardware and storage software to small and medium businesses as well as large enterprises. 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.
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 13.7% in 2014 making storage products the most valuable division of NetApp. However, over the last 6-8 quarters, NetApp (and most large storage vendors) have faced pressure from small competitors that sell cheap white-box storage systems. As a result, its share stood at around 11% in 2015 and 10.7% in 2016.
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. NetApp has gross margins of 96% on software maintenance.
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. According to our estimates, NetApp sold each GB of storage for just under $0.70 in 2013, which further fell to under $0.60 per GB in 2015 and $0.50 per GB in 2016. We estimate that the price will fall to about 30 cents per GB by the end of our forecast period.
How 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 Methodology
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