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William Blair & Company Issues Research Report on Data Storage Industry, Initiates Coverage of Four Companies

CHICAGO, January 12, 2010 - William Blair & Company issued a report on the data storage market and initiated research coverage of four companies in the space. Analyst Jason Ader initiated coverage of EMC Corporation (EMC $17.86), the leader in the $45 billion enterprise storage systems and software market, with an Outperform rating and Core Growth company profile; NetApp, Inc. (NTAP $33.35), the largest pure-play in the $32 billion external storage systems and software market, with an Outperform rating and Aggressive Growth company profile; and Compellent Technologies, Inc. (CML $23.57), a provider of midrange enterprise-class network storage systems and software, and Isilon Systems, Inc. (ISLN $7.23), which develops and sells clustered scale-out NAS systems for storing and managing digital content and unstructured (file-based) data, with Market Perform ratings and Aggressive Growth company profiles.

“We expect mid- to high-single-digit growth in the storage systems and software market as more data is created and archived and data size increases,” Ader said. “In addition, the advent of server virtualization is driving substantial investment in storage because virtualized applications require networked storage—almost half of all enterprise storage purchased today is non-networked. We also see continued room for innovation in capacity optimization technologies and more efficient system architectures that can help manage spiraling IT capital expenditures. While server virtualization may present a threat to the storage industry over the longer term—because of the potential migration of management intelligence from the storage device to the server—we believe storage commoditization is still a ways off. At the same time, best-of-breed strategies are under attack from vertically integrated technology stacks being assembled by large vendors. We expect this will continue to fuel industry consolidation, with best-of-breed smaller storage companies likely to get gobbled up and larger storage companies also potentially in play as the data center wars heat up.”

With respect to specific companies, Ader said, “We believe EMC and NetApp are the best-positioned players in the storage sector as a result of their broad, evolving product sets and ability to leverage the movement toward server virtualization. We believe near-term product momentum and margin expansion, long-term strategic benefits deriving from its ownership of VMware, and low valuation present a compelling investment case for EMC. For NetApp, we believe superior execution, a best-of-breed product offering, and expanding distribution should continue to drive share gains in the near future.”

Ader continued, “Focused niche providers such as Compellent and Isilon are also worth watching because of their innovative approaches to solving the problems of data growth and management. While we expect continued strong top-line growth and operating margin expansion for Compellent—fueled by a differentiated product line and growing distribution—we believe the stock’s valuation largely discounts this positive outlook. We expect Isilon to maintain a solid niche in data-intensive, file-based storage environments in key vertical markets, but we are concerned that the company’s efforts to expand its addressable customer set and broaden its distribution reach could prove challenging given intensifying competition and management’s near-term profitability objectives.”

William Blair & Company, L.L.C. is a global investment firm offering investment banking, asset management, equity research, institutional and private brokerage, and private capital to individual, institutional, and issuing clients. Since 1935, we have been committed to helping clients achieve their financial objectives. As an independent, employee-owned firm, our philosophy is to serve our clients' interests first and foremost. We place a high value on the enduring nature of our client relationships, the quality of our products and services, and the continuity and integrity of our people. William Blair & Company is based in Chicago, with office locations including Boston, London, New York, San Francisco, Shanghai, Tokyo, and Zurich. For more information, please visit www.williamblair.com.

Coverage List



William Blair & Company, L.L.C. intends to seek or expects to receive compensation for investment banking services from Compellent Technologies, Inc., EMC Corporation, Isilon Systems, Inc., and NetApp, Inc. in the next 3 months.

William Blair & Company, L.L.C. is a market maker in the securities of Compellent Technologies, Inc., EMC Corporation, Isilon Systems, Inc., and NetApp, Inc. and may have a long or short position.

Additional information is available upon request.

Current Ratings Distribution (as of 12/31/09)

Coverage Universe
Outperform (Buy): 64%
Market Perform (Hold): 36%
Underperform (Sell): 0%

Inv. Banking Relationships*
Outperform (Buy): 4%
Market Perform (Hold): 0%
Underperform (Sell): 0%

* Percentage of companies in each rating category that are investment banking clients, defined as companies for which William Blair has received compensation for investment banking services within the past 12 months.

Stock Rating: William Blair & Company, L.L.C. uses a three-point system to rate stocks. Individual ratings reflect the expected performance of the stock relative to the broader market over the next 12 months. The assessment of expected performance is a function of near-term company fundamentals, industry outlook, confidence in earnings estimates, valuation, and other factors. Outperform (O) – stock expected to outperform the broader market over the next 12 months; Market Perform (M) – stock expected to perform approximately in line with the broader market over the next 12 months; Underperform (U) – stock expected to underperform the broader market over the next 12 months; Not Rated (NR) – the stock is currently not rated.

Company Profile: The William Blair research philosophy is focused on quality growth companies. Growth companies by their nature tend to be more volatile than the overall stock market. Company profile is a fundamental assessment, over a longer-term horizon, of the business risk of the company relative to the broader William Blair universe. Factors assessed include: 1) durability and strength of franchise (management strength and track record, market leadership, distinctive capabilities); 2) financial profile (earnings growth rate/consistency, cash flow generation, return on investment, balance sheet, accounting); 3) Other factors such as sector or industry conditions, economic environment, confidence in long-term growth prospects, etc. Established Growth (E) – Fundamental risk is lower relative to the broader William Blair universe; Core Growth (C) – Fundamental risk is approximately in line with the broader William Blair universe; Aggressive Growth (A) – Fundamental risk is higher relative to the broader William Blair universe.

The ratings and company profile assessments reflect the opinion of the individual analyst and are subject to change at any time.

William Blair & Company, L.L.C. and its affiliates may trade for their own accounts as market maker, may have a long or short position in any securities of this issuer or related investments, and/or may be the opposite side of public orders.

The compensation of the research analyst is based on a variety of factors, including performance of his or her stock recommendations; contributions to all of the firm’s departments, including asset management, corporate finance, institutional sales, and retail brokerage; firm profitability; and competitive factors.

THIS IS NOT IN ANY SENSE A SOLICITATION OR OFFER OF THE PURCHASE OR SALE OF SECURITIES. THE FACTUAL STATEMENTS HEREIN HAVE BEEN TAKEN FROM SOURCES WE BELIEVE TO BE RELIABLE, BUT SUCH STATEMENTS ARE MADE WITHOUT ANY REPRESENTATION AS TO ACCURACY OR COMPLETENESS OR OTHERWISE. OPINIONS EXPRESSED ARE OUR OWN UNLESS OTHERWISE STATED. FROM TIME TO TIME, WILLIAM BLAIR & COMPANY, L.L.C. OR ITS AFFILIATES MAY BUY AND SELL THE SECURITIES REFERRED TO HEREIN, MAY MAKE A MARKET THEREIN, AND MAY HAVE A LONG OR SHORT POSITION THEREIN. PRICES SHOWN ARE APPROXIMATE. THIS MATERIAL HAS BEEN APPROVED FOR DISTRIBUTION IN THE UNITED KINGDOM BY WILLIAM BLAIR INTERNATIONAL, LIMITED, REGULATED BY THE FINANCIAL SERVICES AUTHORITY (FSA), AND IS DIRECTED ONLY AT, AND IS ONLY MADE AVAILABLE TO, PERSONS FALLING WITHIN COB 3.5 AND 3.6 OF THE FSA HANDBOOK (BEING “ELIGIBLE COUNTERPARTIES” AND “PROFESSIONAL CLIENTS”). THIS DOCUMENT IS NOT TO BE DISTRIBUTED OR PASSED ON TO ANY “RETAIL CLIENTS.” NO PERSONS OTHER THAN PERSONS TO WHOM THIS DOCUMENT IS DIRECTED SHOULD RELY ON IT OR ITS CONTENTS OR USE IT AS THE BASIS TO MAKE AN INVESTMENT DECISION. “WILLIAM BLAIR & COMPANY” AND “WILLIAM BLAIR & COMPANY (SCRIPT)” ARE REGISTERED TRADEMARKS OF WILLIAM BLAIR & COMPANY, L.L.C. Copyright 2010, William Blair & Company, L.L.C.

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