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First Union Initiates SAN Coverage

First Union Securities began coverage of six storage networking companies Tuesday, but found Veritas Software Corp. (Nasdaq: VRTS) the only one worthy of a Buy rating. The others the bank is now covering are Brocade Communications Systems Inc. (Nasdaq: BRCD), EMC Corp. (NYSE: EMC), McData Corp. (Nasdaq: MCDT), Network Appliance Inc. (Nasdaq: NTAP), and StorageNetworks Inc. (Nasdaq: STOR) -- each given a Market Outperform rating.

First Union analyst Andrea Gross says she has initiated coverage on these companies because they are all enabling the unstoppable trend” of moving storage off direct-attached systems and onto storage area networks.

This is being driven by the flood of information on the Internet, which all has to be stored somewhere, she points out. She also says the increasing availability and declining price of bandwidth make it easier to store data in a decentralized way.

Gross issued Veritas with a Buy rating because she believes managing these new and complex storage environments is an immediate concern for companies, one that Veritas is attempting to address.

For the others, Gross likes the long-term prospects but still has concerns about the short-term struggles each faces. She says EMC’s challenges include the IT spending crunch and the decreasing price of hardware; McData and Brocade are still waiting for the SAN market to really bite; and StorageNetworks, the only SSP in the bunch, has yet to prove its business model, she says.