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Shares of NetApp Inc. (NTAP - Snapshot Report) hit a new 52-week high of $43.69 on Sep 11, 2013, eventually closing at $43.43. The closing share price represented an outstanding one-year return of 23.4% and year-to-date return of 26.6%.

NetApp has been witnessing growing demand for its ONTAP suite, higher sales of flash storage devices (led by growing demand for smartphones and tablets) and double-digit growth in branded products. Moreover, the company’s EF540 SSD enterprise storage is witnessing accelerated growth.

Moreover, favorable product mix and cost optimization are positively impacting the company’s margins. Association with Cisco Systems (CSCO - Analyst Report), VMware Inc. (VMW - Snapshot Report) and Microsoft (MSFT - Analyst Report) are the positives for the company. The company is also gaining traction in mobility, big data, flash and cloud segments.

In NetApp’s last-reported quarter (1Q14), the company posted better-than-expected earnings primarily due to higher revenue base and margin expansion. Revenues jumped 5.0% year over year, on the back of higher branded revenues.

NetApp’s indirect revenues remained strong, coming through the channels and original equipment manufacturers (OEMs). Arrow and Avnet contributed 21% and 16% of the total revenue, respectively. Buoyed by the margin expansion and lower operating expenses, earnings jumped 48.0% on a year-over-year basis.

Moreover, the company provided a positive outlook for the second quarter with revenues in the range of $1.560 billion to $1.660 billion, representing approximately 6.0% sequential growth and 5.0% year-over-year growth at the mid-point. Management expects earnings in the range of 60 cents to 65 cents per share, up 18.0% to 27.0% from the year-ago quarter.

We believe that NetApp’s innovative product line-up, frequent updates and shareholder-friendly activities will boost profitability, going forward. However, a sluggish macroeconomic environment coupled with tepid IT spending and competition from its peers are the headwinds for the company.

Currently, NetApp has a Zacks Rank #3 (Hold).

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