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NetApp (NTAP) Completes SolidFire Buyout Worth $870M

Zacks Equity Research

Storage and data management solutions provider NetApp Inc. NTAP has completed the buyout of SolidFire Inc. for $870 million in cash. The acquisition was announced on Dec 21, 2015.

The acquisition will surely enhance the market value of NetApp. It is expected to augment NetApp's leadership position by enhancing its product portfolio with an object-based storage software offering.

Founded in 2010, SolidFire is a global leader in flash storage systems for faster access to insights from Big Data. SolidFire’s unique products are built specially to assure true Quality of Service (QoS) and have garnered significant attention in the flash storage market in recent times.

According to the press release, “Customers now have access to the industry's broadest all-flash portfolio to meet their needs for speed, scale and data services. Over time, SolidFire products will be incorporated into NetApp's Data Fabric strategy, delivering seamless data management across flash, disk and cloud resources."

SolidFire’s all-flash storage systems will largely complement NetApp’s product suite. The acquisition will extend NetApp's flash leadership position, which in turn will allow its customers to analyze fast-growing storage infrastructure.

The company faces competition from tech giants such as International Business Machines IBM and EMC Corporation EMC in the data storage and management software space. We believe this acquisition will give it a much-needed competitive edge to create its own niche.

SolidFire’s flash storage arrays, instead of focusing on improving cache performance, act as primary storage for applications requiring high speed, such as cloud computing and virtualization. This simplifies the storage system while decreasing fetching time, thereby increasing speed.

Further, SolidFire’s flash arrays are built on Next Generation Data Centers that simplify data center operations and enable rapid deployments of new applications. These features make it more cost effective in our view.

NetApp has a dominant position in the flash storage market. According to a Bloomberg report, NetApp’s flash storage sales amounted to approximately $100 million in 2014. The acquisition is expected to boost NetApp’s flash based storage product portfolio going forward. We believe that the acquisition will expand NetApp’s customer base and market share due to higher demand from enterprises going forward.

However, soft demand from U.S. federal agencies and constricted IT spending in general remain headwinds.

This apart, over the last 60 days, three analysts have lowered their estimate for NetApp’s fiscal 2016. There were no upward revisions. The Zacks Consensus Estimate declined 3.7% to $1.57 per share over the same time frame.

NetApp currently carries a Zacks Rank #4 (Sell). A better-ranked stock in the technology sector is Synopsys Inc. SNPS, sporting a Zacks Rank #1 (Strong Buy).

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