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NAS Goes Mainstream

Tough times aren't keeping the technology from gaining acceptance in corporate IT departments

This years plunge in information technology spending has obscured a major strategy shift by IT managers. Despite the painful purchasing slowdown, the deployment of network attached storage (NAS) filers is quickly moving from the realm of niche product for engineering geeks to an IT staple throughout corporate departments in fields ranging from manufacturing to medicine.

As recently as a year ago, NAS appliances were used mainly by technology companies, dotcoms, and engineering departments. Along with the rest of the fallout in tech spending, overall NAS revenues at vendors like Network Appliance Inc. (Nasdaq: NTAP) have dipped during the last couple quarters. But, while sales of NAS filers to technology-centric business units have stagnated, mainstream businesses in other vertical markets have spotted the value of NAS and are increasing spending accordingly.

NetApp CEO Dan Warmhoven noted at a Prudential Securities conference this week that his company has experienced an $80 million quarterly revenue shift. During the quarter ending in April 2000, just before the economy began to unravel, 70 percent of NetApp’s $200 million revenues were sales to technology businesses and departments and to dotcoms. The remaining 30 percent were to non-tech business units.

By the quarter ending July 2001, when revenues were again $200 million, the numbers were reversed. Now, 70 percent of sales are to non-tech business segments. (NetApp will announce its financial results for its October quarter on Nov. 13.)

The key industries NetApp now sells to are telecom services, financial services, energy, manufacturing, life sciences, and government. NetApp began its relationships with major customers by first selling to their engineering departments. Now the company sells to various departments within major clients like Merrill Lynch & Co. Inc. (NYSE: MER), Citigroup, and The Hartford, notes Rod Mathews, NetApp's director of investor relations.

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