NetApp Inc. (NTAP) has strengthened its strategic alliance with Microsoft Corp. (MSFT). Accordingly, the two companies are going to increase technological collaboration in an attempt to help common customers and service providers improve their infrastructure and enhance their operational efficiency. The resultant cost reduction and improvement in management capabilities of these companies should improve customer satisfaction and bring new ones.

With the help of Microsoft’s management tools and NetApp’s storage solutions, customers are expected to create efficient internal and external networks that will ultimately improve the performance of the data centers owned by end customers.

We believe this is a win-win situation for both the companies, as the alliance will enhance the technological exchange between them, at the same time helping them increase their market reach, by providing easy access to each other’s customer bases.

The data storage segment is expected to witness a pickup in demand, keeping pace with the improvement in IT spending. Object based storage is yet another space, which is creating interest among IT managers. This is a new method of storage and access of data through the use of object names. It also helps to retrieve rich metadata that provides a detailed description of the content, thus facilitating the process of storing large objects, at the same time improving the search speed. So, improvement in technology and new service offerings are expected to take the storage industry to new heights, thereby improving business volume.

This apart, NetApp has also performed well in the third quarter, reporting EPS of 40 cents, which exceeded the Zacks Consensus Estimate of 38 cents per share. Moreover, revenue grew substantially during the third quarter to reach $1.01 billion, improving by a staggering 35.5% compared with the year-ago period. This was attributable to the revival in all business segments following the year-long recession.

Having said that, we are slightly apprehensive about the stiff competition that NetApp faces from tech giants International Business Machines (IBM), EMC Corp. (EMC), Hewlett-Packard Co. (HPQ) and Hitachi Data Systems in the data storage and management software space, which may slightly rationalize growth prospects. We believe this collaboration will help NetApp progress towards the leadership position in the storage segment.

Zacks Investment Research

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