Storage Weathers the Economic Storm

Despite plenty of economic doom and gloom, many storage vendors are weathering the current storm, as evidenced by recent solid results from 3PAR, Isilon, and Compellent.

NetApp and Brocade are also expected to give the sector a boost with strong results this week, following in the footsteps of storage bellwethers EMC, HP,and IBM.

Even Sun, which otherwise struggled with a tough U.S. spending climate in its fourth quarter, enjoyed a solid performance from its storage business.

Storage demand [is] healthy,” wrote Pacific Growth Equities analyst Kaushik Roy, in a note last week. “We feel Brocade’s fundamentals are strong at this time. EMC, QLogic, IBM, LSI [and] HDS all reported strong results and we expect NetApp to beat revenue and EPS for July quarter.”

Analysts are currently estimating NetApp revenues of $861.6 million, and earnings of 22 cents per share, although at least one expert foresees an even more bullish performance.“All of our checks, direct and indirect channels, point to a July revenue strength across both products and services - this should support revenue at the high end or above the range ($845-$875),” added Citigroup analyst Paul Mansky, in a note released today. “We believe the high end of the 20 to 23 cent [earnings]range is achievable.”

Brocade, which recently bought router specialist Foundry for $3 billion, may also benefit from Cisco’s recent storage shortfall.

”Cisco lost share to Brocade in the July quarter, in our opinion,” wrote Pacific Growth Equities’s Roy, in his note, explaining that the networking giant’s storage revenues fell 14 percent year-over-year. “We expect Brocade SAN products to be up double-digits year-over-year in the July quarter.”

Brocade, which has already started selling 8-Gbit/s Fibre Channel products, has effectively stolen a lead on Cisco, according to Roy.

”We believe that [Brocade’s SAN growth] is partly because of Cisco’s lack of 8-Gig blades,” he wrote. “And possibly because EMC is favoring Brocade over Cisco at this time – note that Brocade had started selling 8-Gig products in the first calendar quarter.”These sentiments were echoed by Citigroup analyst Mansky.

“The high end of the storage market was stronger than normal through the July quarter in large part due to the mainframe cycle, as confirmed by commentary from Sun, EMC, IBM and HP,” he explained in a note today. "At the same time Cisco’s storage switch business was off 14 percent year-over-year.”

The analyst also predicted a strong set of results for Brocade, which is expected to report revenues of $351.29 million and earnings of 14 cents, according to analysts.

”Although the Foundry acquisition bid adds complexity to what was otherwise a clean Buy thesis near-term, the strong July performance should provide some relief,” he wrote. “We maintain our Buy rating and $9 price target on Brocade shares.”

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