Robert DeFrancesco s

TechStockProspector.com
January 15, 2012

Is NetApp (NTAP) Going to $29?

-----------------------------------------------------------------------------------------------------Tech-Stock Prospector is now available in the Amazon.com Kindle Store in the Business & Investing section of the online magazine stand. Here s the Kindle link: http://www.amzn.com/B004T6Z0ME -----------------------------------------------------------------------------------------------------Shares of storage vendor NetApp (NTAP, $33.98) have been trying to hold the earlyOctober low of $33. The stock had rallied into the beginning of November, hitting a high of $43.06, before disappointing fiscal Q2 (October) revenue and fiscal Q3 guidance caused a one-day drop of 12% on November 17. On Friday, NetApp shares hit a low of $33.50; the chart pattern indicates potential downside risk to the January 2010 low of $28.92. Management blamed the fiscal Q2 revenue miss on weakness at nine major U.S. accounts. Of these nine, one was said to involve a competitive component, while the other eight were macro-related or company-specific issues. While NetApp said it saw weak fiscal Q2 demand at the low end (partially because of customers moving up to the 3000 from the 2000 product line), unit demand for the 6000 series doubled year over year. Another positive: The number of large deals worth more than $1 million each rose 17% sequentially and 30% year over year. For fiscal Q3, management was cautious with guidance projecting revenue of $1.52 billion to $1.61 billion, vs. the consensus of $1.64 billion because of concerns about drive availability caused by the floods in Thailand and the economic situation in Europe. Management said the flooding issue would be a major swing factor for the second half of fiscal 2012. Some analysts also blame increased competition from major rival EMC (EMC, $22.25). Credit Suisse earlier this month downgraded NetApp to Neutral, saying EMC is the source of a lot of competitive challenges in the midrange, which is where NetApp derives about 70% of its revenue.

NetApp does boast a solid balance sheet: $4.6 billion in cash against convertible senior notes of $1.175 billion and other long-term debt of $211 million. Net cash amounts to roughly $9 a share. The company has put into place an accelerated $400million share buyback program. NetApp recently traded at 14.2 times the fiscal 2012 (April) consensus EPS estimate of $2.39 and 12.3 times the fiscal 2013 consensus of $2.75. Back out the net cash per share and the FY12 forward P/E declines to 10.4. For more on the tech sector, see the January 2012 issue of Tech-Stock Prospector, which is now available at TechStockProspector.com (subscription required) and in the Amazon.com Kindle store. We offer 30-day trial subscriptions, including daily Web updates, for just $47. Here are some of the topics covered in the January 2012 issue: *Hot tech trends for 2012 *4 cloud software buyout targets *A winning play in storage *Benefiting from the 4G upgrade cycle *Google valuation analysis update *Akamai investors applaud the Cotendo purchase *Tibco Software tops expectations *Red Hat expands its reach *Buy Zynga on the dip? *Acme Packet hits an air pocket *Battleground stock for 2012: Salesforce.com *Money Manager Focus: Seeing value in SGI *How Ariba drives B2B commerce *IPO Focus: Jive Software *TSP Deal Report: A look at privately held Splunk To place an order, simply call TSP Customer Service at 800-392-0998 or visit TechStockProspector.com -----------------------------------------------------------------------------------------------------Tech-Stock Prospector is now available in the Amazon.com Kindle Store in the Business & Investing section of the online magazine stand. Here s the Kindle link: http://www.amzn.com/B004T6Z0ME ------------------------------------------------------------------------------------------------------

Tech-Stock Prospector Managing Editor Rob DeFrancesco has more than 20 years of experience covering the tech sector. He is a former senior writer with Louis Rukeyser s Wall Street. TechStockProspector.com, launched in 2003, is an investment-research service focused primarily on the networking, storage, security, wireless and software sectors. Annual subscription: $350. For more information or to place an order, call 800-392-0998.