NetApp buying Data Domain

NEW YORK Wed May 20, 2009 7:24pm EDT

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NEW YORK (Reuters) - Data storage equipment maker NetApp Inc (NTAP.O) said it will buy another storage-related firm, Data Domain DDUP.O, for $1.5 billion, even as it reported a decline in quarterly profit and avoided giving an outlook due to the weak economy.

The Sunnyvale, California-based company said its planned acquisition of Data Domain for $25 per share in cash and stock would help NetApp's distribution and international reach.

Analysts said the move made sense for NetApp, and was timed well as valuations have fallen sharply in the past year.

"Had they picked it up a year back, they would have had to pay more than 30 bucks," said ThinkEquity analyst Rajesh Ghai.

MKM Partners analyst Richard Sherman said the deal would also help Data Domain -- whose shares shot up 34.0 percent in after-hours trade to $24.00 -- compete more effectively against its key rival EMC (EMC.N).

"The smaller vendors like Data Domain are trying to execute against a pretty stiff headwind right now with firms like EMC out there in the marketplace exerting extensive amounts of account control," Sherman said.

Data storage has become an increasingly hot area as increasing use of the Internet has forced companies to look for more efficient ways to store data.

Data Domain specializes in technology that allows customers to get rid of duplication, or redundant data, and free up space in their computers -- a technology that NetApp Chief Executive Dan Warmenhoven said would complement its own product lineup.

"This acquisition is a growth opportunity for both companies," he told analysts on a conference call, adding that he expects the move to help them acquire new customers and expand market share.

NetApp also said it expects the deal to close in 60 to 120 days and contribute to earnings within a year.

VALUATION

Data Domain's CEO recently said the company plans to achieve $1 billion in annual revenue in about 3 years, compared with last year's $274 million. For 2009, it has forecast $365 million to $385 million in revenue.

Shares of NetApp, which had closed down 4 percent, fell a further 1.3 percent to $17.11 in extended trading.

NetApp also announced that revenue for the quarter ended April 24 fell to $880 million from $938 million a year ago. That was, however, better than the average analyst estimate of $856 million, according to Reuters Estimates.

Net profit for its fiscal fourth quarter ended April 24 fell to $75 million, or 23 cents per share, from $90 million, or 26 cents, a year earlier. Earnings excluding items fell to 31 cents from 38 cents, the company said.

The company said it was unable to give a revenue forecast for the current quarter as well as the full fiscal year, due to a weak economy.

It also said it did not believe it was being displaced by rivals, and that customers appeared to be extending existing contracts by one more year rather than upgrading equipment.

(Additional reporting by John Tilak in Bangalore; Editing by Tim Dobbyn, Bernard Orr, Phil Berlowitz)

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