Red Hat, downgrades pressure enterprise IT names


Several enterprise IT names are lower after Red Hat reported weaker-than-expected Aug. quarter billings and issued soft top-line guidance yesterday afternoon, and Red Hat, EMC (EMC -1.2%), NetApp (NTAP -0.5%), and F5 (FFIV -2.2%) were hit with downgrades this morning.

Notable decliners include Citrix (CTXS -2.6%), VMware (VMW -1.9%), SolarWinds (SWI -2.1%), Teradata (TDC -2.1%), CommVault (CVLT -2.1%), and Radware (RDWR -2.4%). Red Hat partly blamed its performance on weak European demand.

Barclays' Ben Reitzes suggests his downgrades of EMC and NetApp are partly valuation calls (both companies are near his PTs). But he adds "there may be more upside in networking names today" in light of "long-term headwinds to storage demand." The growth of cloud infrastructure platforms relying on commodity hardware (AWS being the most notable) is generally viewed as a threat to storage incumbents.

William Blair cut NetApp to Underperform last week, raising concerns about executive departures, a flash memory-focused refresh to EMC's VNX mid-range storage line, and the Cisco-Whiptail deal.

Goldman's Kent Schofield, who cut F5 to Neutral, says he thinks Street estimates now take into account F5's application delivery controller (ADC) refresh cycle and Cisco ADC displacements.

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