Merriman Curhan says demand is tracking well for the storage sector.
Merriman Curhan Ford
OUR REVIEW OF THE calendar third-quarter 2009 earnings season points to a solid pickup from the doldrums of the first-half 2009 tech recession with a median-sequential increase in revenue of 8% amongst our coverage universe, adding some weight to our argument of the second-half 2009 pickup in spending and a “budget” flush heading into fourth-quarter 2009 (up from 3% in the September quarter).
As we detail, clearly the Storage names in our universe were the outperformers as Data Networking vendors trailed on most metrics, adding weight to our sentiment that deferred upgrades to Storage capacity in early 2009 were to experience a catch up later this year as most information-technology organizations couldn’t defer these investments indefinitely.
And within the Storage universe, the clearest area of growth in our view was amongst the mid-market-focused vendors such as NetApp (ticker: NTAP) and Compellent Technologies (CML), whose customer bases have more responsive-budget cycles as compared to the larger enterprise focused EMC (EMC) and 3PAR (PAR) (with both Compellent and NetApp posting near 10% sequential growth).
We continue to favor a weighting toward the Storage sector through fourth-quarter 2009 as demand appears to be tracking well for most of our coverage universe, as well as Networking names such as Riverbed Technology (RVBD) that continue to focus on increasing its technology partnerships in the SAN and NAS [networking technologies] markets. Separately, vendors with specific near-term drivers such as Super Micro Computer (SMCI) (Nehalem tailwinds) and Netezza (NZ) (TwinFin product cycle) should help boost performance through the year end.
Related price-valuation ranges: EMC, sum of the parts, $18-$22; NetApp, 16 times-18 times calendar 2010 adjusted price/earnings multiple, $28-$35; Compellent, 3 times-3.9 times calendar 2010 enterprise value (EV)/sales, $19-$23; Super Micro, 11 times-15 times calendar 2010 adjusted P/E, $11-$14; Netezza, 2.8 times-3.4 times calendar 2010 EV/sales, $12-$14.