Network Appliance (Nasdaq: NTAP) tumbled 13 percent Thursday after it was downgraded to "hold" by Credit Suisse First Boston.
Merrill Lynch said the company was still a "buy" and challenged the "negative comments made by a competitor firm."
Shares were off $6.81 to $46.81 Thursday, well below their 52-week high of $152.75.
Credit Suisse First Boston analyst Amit Chopra downgraded Network Appliance to "hold" from "buy" Thursday, on concerns that EMC (NYSE: EMC) -- traditionally a specialist in storage area networks -- is gaining ground in the market for network attached storage.
"Our industry checks indicate that EMC's recent push into the NAS (Network Attached Storage) market with a unique architectural approach and aggressive pricing could hamper NTAP's ability to sustain top-line growth," Chopra wrote in a research note.
Though Network Appliances had an early lead in the NAS market with a 50 percent market share, EMC wants take control of the NAS market by the end of 2001.
Chopra added that in the near term, the slowdown in IT spending by dot-coms may limit Network Appliance's ability to beat quarterly results or justify its rich valuation. Concerns about the soft environment for IT spending caused the stock to be downgraded earlier this month by Goldman Sachs.
A brief research note from Merrill Lynch Thursday questioned the reason for CFSB's downgrade. "We believe that the competitor's downgrade may have more to do with concern about the dot-com market," wrote Merrill analyst Tom Kramer, who reiterated a "buy" rating on Network Appliance.
Prices and demand appear solid for Network Appliance, Kraemer said.