NetApp Inc. (NASDAQ:NTAP) released a new OS for its clustered data solution that should lead to gains in market share, possibly at the expense of EMC Corporation (NYSE:EMC). Additionally, the company recently decided to issue dividends and approved a $3 billion share repurchase program. NetApp Inc. (NASDAQ:NTAP) is a data storage company offering data management and enterprise storage solutions. It partners with International Business Machines Corp. (NYSE:IBM), VMware, Inc. (NYSE:VMW), Cisco Systems, Inc. (NASDAQ:CSCO), Microsoft Corporation (NASDAQ:MSFT) and Fijitsu.
Dividend and Repurchase Program
Last quarter the company announced a $0.15 per share dividend, 1.6% yield, somewhat to the surprise of investors. The company also increased the repurchase plan by $1.6 billion to $3 billion. Management indicated aggressive activity over the next four months, planning to spend $1 billion on repurchases and another billion over the eight months after that. The company has a market cap of about 13.5 billion.
Share Gains Possible Behind ON TAP 8.2 Release
NetApp Inc. (NASDAQ:NTAP) is positioned to begin gaining market share behind an update to its operating system for ON TAP, its clustered data solution. NetApp Inc. (NASDAQ:NTAP) recently released the latest version of its operating system ON TAP 8.2 earlier this week. Initial feedback has been positive, and users are finding value, particularly in the new iteration’s ability to eliminate downtime during upgrades. Previously, clients ran into problems when upgrading to cluster-mode. It required downtime as well as data migration. The new version should accelerate adoption of cluster mode since this headwind was eliminated for customers. Also in cluster mode, NetApp Inc. (NASDAQ:NTAP)’s new OS offers duplication. Competitors offer duplication but not in this mode.
The new OS also includes a feature titled Non-Disruptive Operations (NDO). This allows the hardware and software system to remain operational during maintenance activities. For example, software upgrades and firmware upgrades no longer require downtime. An increase in storage capacity, performance improvements and other hardware upgrades also no longer require downtime. This is the second feature in the new OS that focuses on less downtime for its clients. It is an advantage over competitive technologies and should contribute to share gains.
NetApp Inc. (NASDAQ:NTAP) now has an entry into Software-Defined Storage. Its offerings previously had the ability to virtualize third-party storage into pools. The new Software-Defined Storage gives users a tool to control and manage data on any storage hardware and use any storage protocol, including SAN and NAS protocols. The virtualization of data storage also includes hardware that is not NetApp’s.
NetApp Increasingly Competitive With EMC
EMC Corporation (NYSE:EMC) competes for much of the same business as NetApp. NetApp’s Software-Defined Storage includes EMC’s ViPR. EMC Corporation (NYSE:EMC) will not introduce its offering until 2H13, giving NetApp an advantage. However, EMC’s system is expected to support object protocols like HDFS. This will present a challenge according to analysts when trying to penetrate mega-capacity environments. That said, NetApp is not in this space currently, but this could act as a barrier to penetrating that market.
ON TAP 8.2 also increases the scalabity of NetApp’s solution. Currently EMC’s V-MAX array dominates the SAN market at the top end. In 8.2, the number of nodes/controller increased from four to eight, which should allow NetApp to compete in this market with EMC.
A concern for NetApp is their ability to displace an entrenched EMC Corporation (NYSE:EMC) in certain markets. NetApp needs to develop sales channels where it traditionally has not been a player.
The dividend and share repurchase programs are encouraging, but potential growth versus easy comps from 2012 from ON TAP 8.2 are the most compelling reason to own the shares. The stock is not expensive compared to historical levels and is actually trading at a discount. If it can execute, the expected growth rate should expand as should the earnings multiple on the stock, driving shares higher.
The article Why Are Investors Happy About This Company’s Prospects? originally appeared on Fool.com.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool owns shares of EMC. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.