Shares in thin server sweetheart Network Appliance Inc dropped a third of their value last week. As is usual in cases like these, a conference call on Monday brought together the founder, CEO, CFO and VP of sales. In addition, there was an announcement of a strategic partnership to market NetApp’s NetCache software with the Hewlett-Packard Co’s HP-UX operating system. And Merrill Lynch was also out in force, having staked part of its reputation on the hot stock fulfilling its promise to become the next major computer company. To soothe troubled analysts, Dan Warmenhoven, president & CEO, reiterated the concept of the network data access appliances on which the company is based. He said that the appliances are simple, single-function, reliable devices, and while they can significantly improve network access performance, their real purpose is to simplify data management. The company has a whole family of such devices up and running, including: Windows and Unix file systems or, in NetApp’s neologism, filers; database servers; and web caches. NetApp claims it’s the only vendor to offer systems across all those markets, a claim that’s likely to rile Linux startup Cobalt Networks Inc. NetApp lives or dies on the validity or otherwise of the appliance concept. As Dave Hitz, founder & VP explains: Engineers who focus on just one thing will do an amazing job. That ultimately is why I believe the appliance model builds great companies. In the back of NetApp’s collective mind is Cisco Systems Inc, which built an empire exploiting the vacant niche of dedicated TCP/IP routers. NetApp executives return to the Cisco example again and again. Tom Mendoza, VP of sales, calls routers the first appliances and says NetApp wants to do the same thing on the LAN. It’s a good story and until last week, investors had been eating it up. So why the stock plunge? Like Network Associates Inc before it (CI No 3,493), NetApp seems to have been burned by rumors traceable to short sellers. An online tipster, styling him or herself Lion_Master88, had urged investors to take their profits and get out of NTAP. Network storage products on decline, the web site at https://www.geocities.com/WallStreet/Exchange/5313/shorts.html warned: Extremely high valuation. Another comment on a Yahoo! Message board reads: NTAP owns very little. RAID is outsourced to Eurologics in Ireland and everyone seems to be getting into the network attached storage business with very competitive products at very competitive pricing… Perhaps Wall Street is taking a look at this vertical as a whole and asking what is it that really warrants the stock being so very, very high. The effects of gloomy prognostication on the Yahoo finance boards are not without parallels. An email doing the rounds of Seattle recently predicted that Washington state was about to endure its worst winter in 50 years. So many anxious calls poured into the University of Washington department of atmospheric sciences that it was forced to issue a press release dismissing the email as unsupported hype. As information resources go, the internet makes a terrific feedback loop. This must be cold comfort for NetApp, which closed at $42.63 from around $60 a week ago.
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