NetApp Is Doubling Down On 'Flawed Strategy,' Still A Hold, Says Summit Research

In a report published Friday, WR Hambrecht analyst Srini Nandury reiterated a Hold rating and $32 price target on NetApp Inc. (NASDAQ: NTAP). The analyst believes that the company is in denial of the real issues affecting the business and is "doubling down on its failed strategy."

The analyst believes that there are two issues facing the company, execution issues and product issues. The former is likely to be easier to fix than the latter. NetApp's CEO, George Kurian, is currently focused on tackling the execution issues and the analyst expects these issues to be resolved within the next two to three quarters.

"However, we remain concerned on the product front as we believe the company's products have not kept up with the changes in the industry," Nandury stated, adding, "We believe NetApp's focus on Cluster ONTAP is flawed given that many mid-market customers do not need clustering and more importantly moving to Cluster ONTAP is a forklift upgrade for many customers."

Given that forklift upgrades are often troublesome, the analyst believes that many customers could be tempted to look for alternative solutions rather than undertake such an upgrade. In addition, the company's hybrid storage solution appears "fundamentally inefficient." The company is unlikely to be able to return to growth until it fixes its product related problems.

According to the WR Hambrecht report, "One of the reasons, NetApp continues to double down on Cluster ONTAP is that it continues to suffer from NIH (Not Invented Here) syndrome which plagues many companies in the valley. Typically the old guard (the founders and the first few engineers of the company) resist any new ideas/products/innovations from the outside to take root within the company."

The analyst believes that this NIH syndrome could prevent George Kurian from being able to make any significant product related changes. "Therefore, we call the board of NetApp to bring in a decisive leader from the outside to evaluate the product portfolio and shake up the old guard," Nandury added.