Network Appliance Shares Rise on IBM Speculation
By Therese Poletti, San Jose Mercury News, Calif.
Jan. 13–Shares of Network Appliance jumped Thursday, for the second day in a row, on speculation that the storage appliance company would be acquired by computer giant IBM.
Network Appliance, based in Sunnyvale, makes storage devices that can be attached to computer servers to expand their storage capacity. It is in one of the fastest growing segments of the storage business, called network attached storage.
Shares of Network Appliance, often referred to as NetApp, surged $2.23 a share, or 7.3 percent, to close at $32.67 Thursday, when it was the 12th most actively traded stock on the Nasdaq, with 25.5 million shares changing hands. On Wednesday, it had jumped 6 percent to $30.44, from $28.63.
But analysts who follow Network Appliance said a purchase by IBM would be unlikely.
“I would put little credibility in it,” said Daniel Renouard, an analyst with Robert W. Baird. “It would be expensive and the cultural differences are pretty big.”
Clint Roswell, a spokesman at IBM headquarters in Armonk, N.Y. declined to comment. Jodi Bauman, a spokeswoman for Network Appliance, also declined to comment.
NetApp currently has a market capitalization of about $12.2 billion, based on Thursday’s closing stock price. Its stock is trading at about 30 times earnings estimates for fiscal 2006.
Analysts said they believed some short sellers bought Network Appliance stock recently, betting it would decline because of rumors last month of component shortages that would hurt its fiscal third quarter results. Such traders “short” a stock by selling borrowed shares. They pocket a profit by buying them back later at a lower price — known as covering a short position.
Analysts said NetApp short sellers are now covering their positions, driving up the stock price.
“There were some short rumors going around that they might miss the quarter,” Renouard said. NetApp will report its fiscal third quarter on Feb. 15. “It’s a short squeeze.”
On Wednesday, at a standard presentation at a Needham & Co. growth conference, the company offered no changes in financial guidance, said Bauman of NetApp.
Ashok Kumar, a Raymond James analyst, said buying NetApp would not fit with IBM’s current strategy. The computer giant has exited parts of the storage business. In 2003, IBM sold the bulk of its hard disk drive operations in San Jose to Hitachi for $2.05 billion. IBM now resells some models of NetApp devices under the IBM brand, in an agreement signed in April.
“It would make no sense for IBM to acquire NetApp,” Kumar said. “Their hardware and software business has not shown much organic growth, so the only opportunity for IBM is on the services side.’
Contact Therese Poletti at tpoletti@mercurynews.com or (415) 477-2510.
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