Will Desktop As A Service Revive NetApp’s Fortunes?

NetApp (NASDAQ:NTAP) has had a fairly slow year so far and the previous quarter’s results were also lower than expected. It reported net revenue of $1.44 billion in Q1, down 15% q-o-q. Product revenue took a hit as it declined 23% quarterly and 7% annually to $898 million. Service revenue, however, showed robust y-o-y growth, growing 11% and came in at $328 million. NetApp is involved in designing solutions for storing, managing and protecting business data through enterprise storage and data management software as well as hardware products and services. The company has now teamed up with desktop-as-a-service (DaaS) provider Desktone to simplify the DaaS solution. The plan is to reduce costs, improve performance and manage complexity by integrating know-how and solutions from both companies. ^[1]

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DaaS is specifically built for cloud delivery environments and combines technologies from both NetApp and Desktone. It offers a single, scalable infrastructure that is cost-efficient and is equipped with security measures. These are enterprise-ready desktops and the service can scale on-demand, is cost-effective and allows enterprise IT to easily meet end-user business objectives. NetApp will provide storage and thin client infrastructure along with software support for back-up and deduplication of data. The service will enable instant provisioning of new virtual desktop environments. The new combined entity offering has features such as multi-tenancy, which enables service providers to deliver desktops to multiple customers. FlexClone technology enables quick and almost instant provisioning of new desktops for users with minimum additional computing requirements. With IT spending on the decline and PC growth declining, this can prove to be a huge growth opportunity for NetApp as companies look to reduce IT hardware costs.

Cloud Storage, Big Data And StorageGRID Key for 2013

NetApp’s product revenues took a hit in the previous quarter due to seasonality and macroeconomic factors, but hardware maintenance contracts showed robust growth. This means that as companies move away from traditional computing environments to cloud computing, the shift is likely to drive demand for storage.

StorageGRID software now comes with the Cloud Data Management Interface (CDMI) standard. This is developed by the Storage Networking Industry Association (SNIA) and involves interaction of applications with cloud storage. It covers activities such as creation, retrieval and deletion of data elements from the cloud and is an open standard for self-provisioning and accessing cloud storage. This is a shift away from proprietary APIs and interfaces that ties clients to their storage vendors as CDMI is a more open approach aimed at reducing vendor dependability. In essence, a company can change cloud storage vendors easily and is not dependent on a single vendor. Currently, NetApp is one of the few large storage vendors that supports the standard, and we expect this to drive its revenues as it will be able to better manage its clients’ storage needs. ^[2]

We currently have a $41 Trefis price estimate for NetApp, which is about 50% higher than its market price.

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1. NetApp and Desktone Deliver Secure, Multi-Tenant Desktops as a Service for Service Providers, investing.businessweek.com, October 9, 2012 [↩]
2. NetApp StorageGRID, www.theregister.co.uk, August 13, 2012 [↩]