NetApp Company Review: Mez Hamd NetApp Company Review Company Background NetApp was started in 1992 in Sunnyvale California and was originally named Network Appliance. The company originally focused on network attached storage devices and has since broadened its presence in the larger enterprise storage market. Its major products are focused on enterprise data storage and filer systems (CBR, 2010). These software and hardware packages allow data management, and security which can increase a company’s performance, profitability, and productivity.
NetApp is part of the data storage device industry where a few companies control a majority of the market share. The main competitor of NetApp is EMC; which is a larger more established company with a diverse portfolio of products. There is heavy competition due to the size of these companies; innovation and R&D are a major driving factor in this industry (Egge, 2010). Company Structure & Position in the Market NetApp’s income statement is broken down into 3 parts for revenue Products, Services, and Software entitlements and maintenance (NetApp, Inc. 2010). Products are the largest part of NetApp’s annual revenue.
They focus on enterprise solutions and have and strong network of partnerships that help them maintain a strong presence in the market. Services are the second largest part of annual revenue. Their service business focuses on customer education, training, and business and support solutions. This service can help take the client through every part of service delivery and implementation. The smallest part of NetApp’s revenue comes from their Software entitlements and maintenance they provide. This part of their business is in line with their service support they offer.
NetApp offers product upgrades, extended warranties, enhancements, maintenance and support on bug issues. Acquisitions are a large part of this industry with many market leaders utilizing this strategy to gain a stepping stone into new markets. Net App is among the major players in this industry making up about 10. 3% of the market share (Dignan, 2011). NetApp’s main competitor is EMC which holds about 26% of the market share (Dignan, 2011). EMC has a broader focus which allows rivals, who have formed out niche markets, to have an opportunity of growth.
NetApp has chosen product focus rather than product diversity but also targets innovation and development. They have been recognized by Forbes magazine in its top 50 most innovative companies in the world (Forbes, 2011). NetApp is a leader in its sphere of influence and helps shape the industry with other market leaders. As the trend of cloud computing grows NetApp will be in the front of the pack for this new era. SWOT Analysis The strength of NetApp comes from their market strategy and enterprise business focus. They have since broadened there product lines, service and partnerships.
These partnerships have allowed NetApp the ability to integrate into other major companies products such as Microsoft and Oracle (NetApp Corporate, 2010). These opportunities have allowed NetApp to continue to create and offer new devices with enhanced capabilities to evolve with time. The growth they have experience have also brought the company culture to the surface. Fortune magazine has rated NetApp in the top 5 places to work for the past 3 years, which is important because in this industry reputation matters (CNN, 2011).
NetApp has shown weakness in the diversification in the storage industry as a whole. As reported this year 2011 they have cut their 3rd quarter outlook due to a slowdown in business on 9 of their large accounts (Bylund, 2011). This is a direct weak point of NetApp as they are reliant on a handful of accounts to stay competitive in their business. Their supply lines are diversified but natural disasters as in the Thailand flooding can still have a drastic effect to the overall business (Kovar, 2011). NetApp’s opportunities will continue to grow based on the markets enhancements and innovations in the industry.
Through corporate and private interviews NetApp has voiced their positive view on opportunities with partners, technology and acquisitions (NetApp Corporate, 2010) . With the influx of new technologies new companies will struggle to enter the market. Through acquisitions NetApp will continue having opportunities entering a new market segments and growing established markets. The threats NetApp will face remain consistent for most domestic players in the industry. Overseas operations and new startups continue to enter and eat market share.
These international companies obtain a financial edge due to lower costs of land and labor. Regulations and costs associated are lower in some countries as well. The most important threat is new technological developments. This situation can define a company and industry for an era and cause other companies to become obsolete, or in danger of being bought out. This threat looms over the industry and is a driving force pushing companies to invest in R&D. Porters Five Forcers Analysis The suppliers for NetApp do not hold a strong position and there power is low.
NetApp does utilize outsourcing but they maintain most critical production within the company. They have maintained strong relationships with their business partners to ensure essential supplies are available. The Thailand floods are a direct example of what can happen when components are developed over seas and issues arise in other countries. NetApp has stated they will be affected if the supply lines remained closed but they are also utilizing other supply channels to reduce any impact (Kovar, 2011). The buyers of NetApp equipment and services are in a strong position to affect the company and have medium power.
NetApp’s largest accounts directly affect the revenue of the company (Bylund, 2011). If these large accounts decide to switch hardware or software NetApp would take a drastic hit and this would affect the profitability and life of the company. The buyers in for NetApp are enterprise consumers, and not regular household consumers. The threat of new entrants is low because barriers to entry in the data storage industry are high. There is a large capital outlay that is needed to compete on the enterprise level and to out sell a product or service of an already established name in the industry is very difficult.
The threat of substitutions is high for NetApp and all companies in this industry. Competition is able to offer products and services that are on par with NetApp and others. This threat is powerful and a market driver as it keeps all leaders in the industry ensuring they are pricing competitively and designing new technologies that will drive the market to their product or service. The rivalry and competition in this industry is high. The size of NetApp give it an opportunity to grow and remain a leader but also gives other companies a reason to target NetApp as they are a significant threat in the industry.
The degree of rivalry is so great it affects NetApp and other companies’ ability to enter different aspects of the storage market. Acquisitions or innovation are the most common way companies branch out to offer different products and services. NetApp’s Strategy and Future Prospects NetApp’s strategy has evolved dynamically with the market in regard to product focus. They have consistently positioned themselves in the enterprise market and have maintained that strategy since creation of the company (Mellor, 2011).
NetApp has grown its enterprise market by utilizing partnerships and value added resellers known as Var’s, this business amounts to 70% of NetApp’s revenues (Egge, 2010). This strategy allows them to broaden their interaction with the market by utilizing partnerships, but also helps them grow the reputation of NetApp with its ability to integrate with top tier enterprise systems like, ERP, Microsoft, and SAP (Mellor, 2005). NetApp is investing in cloud computing, by offering a wide selection of services and products they are a strong competition to any business entering the cloud computing services.
They have been able to use there strategy to combat company deficiencies in product diversity and competition in the market. The future for NetApp remains positive due to their market strategy. Their partnerships and market customizable products have earned strong credibility in the market and media. They have invested heavily in the cloud computing solution market and are poised to be a leader in enterprise cloud services (Michael Linett & Zerowait Corporation, 2007). They have been able to show growth and profitability during a recession and will be positioned to continue to ride and create market trends.
There remains a feeling of apprehension for this industry as new technologies like cloud computing may bring a drastic change to the market. Companies that are fluid and change before the tide will be able to capitalize on the shifts; other companies will not be so lucky and will be pushed out of the market. Overall NetApp is a leader in this growing industry and it will continue to expand with developments in technology and consumer desires. References AllBusiness. com. (2010). Industries. Retrieved from All Business: http://www. allbusiness. com/technology/services-value-added-reseller-var/1475-1. html Bylund, A. 2011, November 11). What Wrong with NetApp? Retrieved from The Motley Fool: http://www. fool. com/investing/general/2011/11/22/whats-wrong-with-netapp. aspx CBR. (2010). Companies. Retrieved from CBR: http://www. cbronline. com/companies/netapp_inc CNN. (2011, February 7). Fourtune Magazine. Retrieved from CNN: http://money. cnn. com/magazines/fortune/bestcompanies/2011/ Dignan, L. (2011, November 16). Between the Lines. Retrieved from ZDNet: http://www. zdnet. com/blog/btl/netapp-cuts-q3-outlook-sees-weakness-in-large-accounts/63688 Dignan, L. (2011, March 4). EMC maintains storage market share lead, field heats up.
Retrieved from ZDNet: http://www. zdnet. com/blog/btl/emc-maintains-storage-market-share-lead-field-heats-up/45685 Egge, C. (2010, July 1). New Research. Retrieved from ICT & the world of Content: http://clausegge. com/2010/07/netapp-strategy-update/ Forbes. (2011). The Worlds Most Innovative Companies. Retrieved from Forbes: http://www. forbes. com/special-features/innovative-companies. html Kovar, J. F. (2011, November 17). Storage News. Retrieved from CRN: http://www. crn. com/news/storage/231903301/netapp-dell-overland-storage-say-thailand-flooding-impacting-industry. htm;jsessionid=dJDPj2tjOtRLzPpA3iD-SQ**. cappj01 Mellor, C. (2005, June 1). Watch Out-NetApp’s About. Retrieved from Tech World: http://features. techworld. com/storage/1481/watch-out–netapps-about/ Mellor, C. (2011, June 1). EMC and NetApp on a Roll. Retrieved from The Register: http://www. theregister. co. uk/2011/06/01/emc_netapp_storage_pure_plays_outpacing_competition/ Mergent Online. (2011, December 1). NetApp Company. Retrieved from Mergent: http://www. mergentonline. com. libproxy. csun. edu/companydetail. php? compnumber=86821&pagetype=synopsis Michael Linett & Zerowait Corporation. (2007, December 11). Articles.
Retrieved from An Honest Look At Storage Trends: http://blog. zerowait. com/? p=523 NetApp, Inc. (2011). 10-K Annual Report 2011. Retrieved from Mergent Online database http://www. mergentonline. com/ NetApp Corporate. (2010, June 17). NetApp’s Strategy is Good for Partners. Retrieved from YouTube: http://www. youtube. com/watch? v=tI10RoWwWIo Porter, M. E. (2008). The Five Competitive Forces that Shape Strategy. Harvard Business Review, 86(1), 78-93. Tables and Figures: Figure 1: [pic] Figure 2: [pic] http://www. theregister. co. uk/2011/06/01/emc_netapp_storage_pure_plays_outpacing_competition/
Table 1 [pic] http://www. zdnet. com/blog/btl/emc-maintains-storage-market-share-lead-field-heats-up/45685 Figure 3: Number of Acquisitions between 1998 and 2010 [pic] Table 2 |INDUSTRY AVERAGES OF STORAGE DEVICES INDUSTRY IN FIVE-YEAR PERIOD | |Financial Ratios |Current |2010 |2009 |2008 |2007 | |EPS |$1. 16 |$2. 10 |$0. 19 |$0. 09 |$0. 7 | |P/E |22. 44 |20. 13 |24. 37 |11. 97 |27. 78 | |Gross Margin |52. 25% |54. 68% |47. 06% |40. 04% |46. 46% | |Operating Margin |15. 55% |17. 04% |5. 80% |1. 10% |10. 58% | |Net Profit Margin |11. 84% |13. 45% |3. 61% |-0. 03% |9. 0% | |Quick Ratio |1. 75 |1. 57 |1. 74 |1. 39 |1. 82 | |Total D/E |29. 23% |27. 91% |39. 90% |30. 00% |24. 40% | |LT D/E |18. 02% |17. 34% |34. 76% |28. 43% |22. 71% | |Interest Coverage |1. 24 |n/a |n/a |n/a |n/a | |ROE |14. 8% |20. 46% |-2. 10% |9. 43% |14. 68% | |ROA |8. 16% |10. 16% |1. 28% |4. 37% |8. 24% | |ROI |10. 79% |18. 08% |3. 52% |9. 82% |10. 99% | |Avg. Market Cap (mil. ) |$6,143. 77 |$6,461. 30 |$4,689. 48 |$4,033. 84 |$6,045. 04 | (http://www. mergentonline. com) (http://www. reuters. com)