Business Values

Faced with a loss of market share, missed sales forecasts, and a potential shortage of hard disk drives, market analysts state that NetApp needs to make several mergers and acquisitions to keep pace with its powerful competitor, EMC. Bill Choi, an analyst for Janney Montgomer Scot LLC, told Bloomburg that as the data storage market gets more competitive, NetApp should make some acquisitions to provide a more complete solution for their customers.

With $4.6 billion in cash on their balance sheet, NetApp appears prepared to take on a strategy of mergers and acquisitions. Robert W. Baird analyst Jayson Noland told Bloomburg that the acquisition of enterprises like CommVault and Quantum Corporation would provide potential market share growth. Although NetApp has declined to comment on acquisition rumors, it appears that this strategy may help NetApp diversify their portfolio and gain back market share.

Market Share Competition:

EMC currently commands 28.7 percent of the market share, while NetApp storage products have only 12.8 percent of the disk-storage-system market. EMC grew their market share by more than 3 percentage points this year, while NetApp storage products increased market share by 1.4 percentage points.

Missed Forecasts, Hard Drive Shortages:

The unstable global economy provided less than impressive sales for NetApp storage, which generates about 25% of their revenue in Europe. NetApp failed to meet this years’ more ambitious sales predictions as cautious spending by enterprises brought in less than anticipated revenue.

Another concern that may threaten NetApp’s future sales is the hard drive shortage created by the recent flooding in Thailand. NetApp has stated in a press conference that they have enough drives in stock to last through the end of December, but that the future impact of the shortage on NetApp’s revenue performance will be difficult to predict.

Future Acquisitions?

In the future, NetApp may need a wider array of products and services in order to offer a more complete data storage solution and keep up with the competition. EMC has diversified their offerings through acquisitions like Data Domain, and NetApp may need to follow suit if they want to grow their market share.

Part of EMC’s continued growth may be related to their spending in mergers and acquisitions: EMC has spent 12 times more in the past decade on mergers and acquisitions than their competitor Netapp. In fact, in the past 10 years, NetApp has spent $844 million on takeovers, while market leader EMC has spent $10.9 billion.

Two enterprises, CommVault and Quantum, have been speculated as potential acquisition opportunities. CommVault provides backup and recovery software, while Quantum specializes in deduplication, data recovery, data archiving, and backup.

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