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Storage Wars: Can EMC and NetApp Coexist in 2013?

Tickers in this article: CSCO EMC HPQ IBM NTAP ORCL VMW
NEW YORK ( TheStreet) -- The degree to which enterprise IT spending recovers this year remains unclear. However, as companies look to position their business toward the cloud, "Big Data" is projected to take up a meaningful portion of corporate expenses. It's unavoidable.

There will be a host of names such as IBM (IBM) and Hewlett-Packard (HPQ) that are vying for that business. But when it's all said and done, only two will produce market beating performances. Investors want to know if the market can support them both.


Market leader EMC finds itself in an unfamiliar position -- having to prove it deserves to lead. The company has been a solid tech play for quite some time. Its problem has always been its lack of sex appeal. The stock has lost roughly 20% over the past couple of months, which has now placed it in value territory. Investors want to believe again. But EMC must first prove its Q3 was an aberration.

For the period ending in September, EMC reported net income of $626.3 million, or 28 cents a share on revenue of $5.28 billion. EPS and revenue climbed 3% and 6% respectively. However both missed analysts' estimates of 42 cents a share on revenue of $5.46 billion. Considering the tough macro condition, EMC's miss was not much of surprise.

In fact, despite the miss, the company continues to grow its core business with 3% and 2% growth respectively in its storage and network storage segments. Likewise, that its high end storage segment produced 5% growth suggests that despite market headwinds, customers still appreciate EMC's superior technology.

Unfortunately, this was not enough to improve gross margins, which also missed estimates. If there was one bright side during the quarter, it was with virtualization giant VMware (VMW) , which is majority-owned by EMC. VMware reported numbers that topped analysts' estimates as the company continues to grow at a 20% rate despite the economic slowdown.

EMC's report could have been much worse. The miss was a disappointment. But sales are still growing -- albeit slower than usual. Management was able to make the best out of a bad situation. The quarter also indicated that that company remains a dominant "Big Data" power. Investors would do well buying at current levels as the stock is poised for 25% surge to $30 at some point this year.

NetApp (NTAP)

Entering this year, I've wondered whether NetApp will remain an independent company beyond 2013. Although EMC has gotten the majority of the press coverage, it is NetApp that continues to be the subject of M&A speculation. And if the company continues to produce as it did in its second quarter, M&A will no longer be just mere speculation.