A couple of Wall Street analysts had good things to say about NetApp (NASDAQ: NTAP) and Brocade (NASDAQ: BRCD) this week and one suggested that NetApp might make a good takeover target for Dell (NASDAQ: DELL) and that Brocade might not be up for sale.
NetApp will report its quarterly results a week from today. Analysts are predicting a 3.4 percent sales decline from the year-ago quarter to $880.3 million, according to Thomson Reuters, and a return to growth in the data storage vendor's January quarter.
Wedbush Morgan analysts Kaushik Roy and Hemant Hebbar and Stifel Nicolaus analysts Aaron Rakers and Matthew Nahorski said this week that they expect NetApp to do even better than that, even though the company has already raised guidance once this quarter (see NetApp's Growth a Good Sign for EMC).
"The IT spending environment appears to have improved since NetApp gave October quarter guidance on October 8th," Roy and Hebbar wrote in a research note today. "NetApp should report good October quarter results."
"Server and storage virtualization will likely be a big driver for storage systems and NetApp is positioned well, in our opinion," wrote Roy and Hebbar, who then added:
"Dell should buy NetApp, in our opinion."
Their rationale? NetApp would be a good fit for Dell's server and storage businesses.
"Storage is adjacent to servers and is an easy sell for Dell," they wrote. "Dell is desperate for margins and storage systems have higher margins than servers and PCs. Dell's acquisition of EqualLogic has been very successful, both in terms of revenue ramp as well as margin contribution. Dell's revenue contribution to EMC has been declining over the last couple of years. Nonetheless, EMC understands the risks of having Dell as a partner and is doing a good job in diversifying its channels."
NetApp has softened its opposition to a takeover since Tom Georgens replaced Dan Warmenhoven as CEO in August (see Could Brocade and NetApp Get Acquired?).
Brocade Not Up for Sale?
The Wedbush Morgan analysts said in a separate note yesterday that they also expect solid results from Brocade on Nov. 24.
"We estimate that Brocade should be able to beat the top and bottom line Street estimates for [the] October quarter," they wrote. "Demand for storage is healthy and almost all storage vendors ... have reported strong storage sales for CQ3."
Brocade competitor Cisco (NASDAQ: CSCO) also reported strong results, the analysts said, adding that "our own checks with OEM partners, resellers and customers lead us to believe that BRCD should beat the Street estimate."
They then took issue with reports that Brocade is up for sale.
"We do not believe that Brocade is up for sale," they wrote, adding that some reports "have indicated that CEO Mike Klayko made it clear to employees at their worldwide sales kickoff last week that Brocade is not for sale."
They said that EMC (NYSE: EMC) and IBM (NYSE: IBM) are not interested in buying Brocade and that HP (NYSE: HPQ) and Dell would have trouble digesting the storage and network switch maker because of Brocade's OEM sales model.
"[I]n our opinion, the stars are all aligned for Brocade at this time and there has never been such an opportunity for Brocade to build a strong company with a large presence in the storage and data networking space," Roy and Hebbar wrote. "We believe BRCD's shareholders see a lot of potential for the company to grow and would not be willing to sell the company at a share price in the low teens."
Update: Roy and Hebbar made their Brocade comments a day before HP announced the acquisition of 3Com (NASDAQ: COMS); after that deal was announced, they said that Juniper (NASDAQ: JNPR) might make an interesting merger partner for Brocade.
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