Netapp, Inc. (MM) (NASDAQ:NTAP)
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5 Years : From Apr 2012 to Apr 2017
Big tech companies that provide servers are "losing ground" to stand-alone storage companies and will have trouble maintaining their investments in the sector, NetApp Inc.'s (NTAP) chief executive said.
Tom Georgens, speaking during a meeting with analysts, said companies like Hewlett-Packard Co. (HPQ) and International Business Machines Corp. (IBM), which sell servers along with a series of other products and services, are losing traction in the storage market--despite recent acquisitions--to companies that focus specifically on that sector.
"Almost no one buys storage from a server company unless they buy their servers there," Georgens said. "Over time, server companies will have difficulty sustaining investment in this space."
He added that NetApp is taking share not only from tech bellwethers but also from rival EMC Corp. (EMC) in the core storage business, excluding EMC's Data Domain backup and recovery business. EMC and NetApp battled over Data Domain a few years ago, with EMC eventually succeeding in buying the fast-growing company. Georgens said much of EMC's revenue growth is attributable to Data Domain.
NetApp shares, up 35% over the past 12 months, climbed 1.1% to $50.53 in recent trading.
The Sunnyvale, Calif., company has been benefiting from the growing need for space to store data at businesses and organizations, taking share from rivals and posting one of the strongest growth rates in the tech industry with its 20% compound annual revenue growth rate over the past five years. But competition is intensifying as big tech companies--including H-P, IBM and Dell Inc. (DELL)--scoop up smaller players and gain a stronger foothold in the market.
NetApp recently made an acquisition of its own, buying LSI Corp.'s (LSI) external storage systems business, Engenio, for $480 million to broaden its offering of high-end products and expand its customer base. Georgens on Thursday said NetApp will continue to make small acquisitions.
He also reiterated NetApp's plans to gain share and position itself as a key supplier of storage for cloud computing and virtualization, which makes data centers more efficient by running multiple computers' operations on a single server.
In addition, Georgens said customers prefer to buy "best of breed" products rather than to buy a complete stack from the larger tech giants.
"Integration is going to be [the server companies'] value proposition," he said. "However, customers know what they're gaining in integration, they're giving up in best of breed. Server companies are not the best of breed at anything."
-By Shara Tibken, Dow Jones Newswires; 212-416-2189; email@example.com