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Mountain View, CA,-based Violin Memory (NYSE:VMEM) scheduled a $162 million IPO with a market capitalization of $736 million at a price range mid-point of $9, for Friday September 27, 2013.

Twelve IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-1 filed September 16, 2013.

Manager, Joint Managers: JPMorgan, Deutsche, BofA Merrill
Co- Managers: Barclays, Baird, Pacific Crest Securities

Summary

VMEM has pioneered a new class of persistent memory-based storage solutions designed to bring storage performance in line with high-speed applications, servers and networks targeted toward enterprise solutions.

Revenue for the six months ended July '13 was up 70% vs July '12.

But VMEM has never made any money, has a low 41% gross profit margin, and lost $1.16 for each $1 of sales for the July '13 six months.

Issues With Hewlett-Packard?

VMEM released its 6000 Series Flash Memory Arrays in January 2012, which represents 80% of total revenue for fiscal 2013.

In fiscal 2012 Hewlett-Packard represented 65% of sales. To date, Hewlett-Packard has not sought to qualify VMEM's 6000 Series Flash Memory Arrays, which is a necessary step for Hewlett-Packard to be able to resell this product.

Valuation

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing june 6 mos

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Violin Memory

$736

7.2

-6.2

4.4

4.5

22%


Accumulated deficit of $-262 million.

Recommendation

If VMEM is priced at the price range mid-point, the rating is neutral to negative, pending market conditions.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

VMEM has pioneered a new class of persistent memory-based storage solutions designed to bring storage performance in line with high-speed applications, servers and networks targeted toward enterprise solutions.

An initial sale by VMEM to an end-customer typically requires three to nine months of selling.

In March 2010, VMEM established a relationship with Toshiba, one of the two largest providers of flash memory. Through this relationship, VMEM developed a fundamental understanding of Toshiba's flash specifications at the chip level, which allows VMEM to optimize hardware and software technologies to unlock the inherent performance capabilities of flash memory and better anticipate future innovations in memory technology.

Customers

VMEM's products are used in a variety of markets, such as consumer, education, financial services, government, healthcare, industrial, Internet, media and entertainment telecom and transportation.

In most cases, VMEM has sold products to large systems vendors or through resellers.

End-customers that have purchased VMEM's products either directly from or through resellers include: AOL, Bank of America, eBay, Fidelity, ICAP, Nirvanix, Verizon Wireless, Tracfone Wireless, USAA, the U.S. Federal government and 24/7 RealMedia.

Customer concentration

VMEM's top five customers accounted for 72%, 83% and 37% of revenue for fiscal 2011, 2012 and fiscal 2013, respectively, and 32% of total revenue for the six months ended July 31, 2013.

In fiscal 2012, Hewlett-Packard, a large systems vendor, accounted for 65% of total revenue. During fiscal 2013 Hewlett-Packard did not constitute a more than 10% customer as its purchases in fiscal 2012 represented large stocking orders of 3000 Series Flash Memory Arrays, and VMEM believes Hewlett-Packard had sufficient inventory of such product as of July 31, 2013.

To date, Hewlett-Packard has not sought to qualify VMEM's 6000 Series Flash Memory Arrays, which is a necessary step for Hewlett-Packard to be able to resell this product.

VMEM released its 6000 Series Flash Memory Arrays in January 2012, which represents 80% of total revenue for fiscal 2013.

In fiscal 2013, CompSec represented 12% of total revenue. It is VMEM's understanding that CompSec purchased products for resale to the U.S. Federal government.

For the six months ended July 31, 2013, Avnet represented 12% of total revenue. It is VMEM's understanding that Avnet purchased products for resale to a large global retailer.

VMEM expects that sales of products to a limited number of customers will continue to account for a majority of revenue in the foreseeable future.

US sales

VMEM derived 92%, 65%, 76% and 71% of total revenue from sales to customers located in the United States in fiscal 2011, 2012, 2013 and the six months ended July 31, 2013, respectively.

Sales And Marketing

In fiscal 2013, the substantial majority of revenue resulted from the direct sales team's engagement with target end-customers.

As of July 31, 2013, VMEM had over 100 channel partnerships, including CompSec, Dell, ePlus, International Business Machines and Mainline, covering over 30 countries.

Intellectual Property

VMEM has 21 issued patents and 55 provisional and nonprovisional patent applications in the United States and 28 issued or allowed patents and 66 corresponding patent applications in foreign jurisdictions, including 21 Patent Cooperation Treaty applications, as of July 31, 2013, relating to solid-state storage, solid-state memory, software acceleration and related technologies

Competition

VMEM competes with companies that sell products using various traditional datacenter architectures, including high-performance server- and array-based storage solutions.

These may include the traditional data storage providers, including storage array vendors such as Dell, EMC, Hewlett-Packard (3PAR), Hitachi Data Systems and NetApp, which typically sell centralized storage products as well as high-performance storage solutions utilizing SSDs.

VMEM also competes with vertically integrated appliance vendors, such as Oracle Corporation and with server-centric flash-based solution providers in limited application use cases, such as Fusion-io.

5% stockholders pre-IPO

Entities affiliated with Rationalwave, 6.7%
Entities affiliated with Toshiba, 14.4%

Use of proceeds

VMEM expects to net $147 million from its IPO.

Proceeds are allocated to working capital and general corporate purposes, including further expansion of sales and marketing efforts, continued investments in research and development and for capital expenditures. Specifically, the company intends to hire additional personnel to support the growth.

VMEM also intends to repay $20 million in debt.

Disclaimer: This VVMEM IPO report is based on a reading and analysis of VMEM's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: IPO Preview: Violin Memory