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The past year was not favorable for Fusion-io (FIO) as the share price fell by around 60%, and its CFO and sales chief left amid weak sales and rising quarterly losses. The company received rating cuts from analysts, the latest coming from UBS in December. CEO Shane Robison has been trying to turn the company around, focusing on research and development and top-line growth.

Developments in the ioTurbine Software

Fusion-io released an ioTurbine caching software update, which increases the performance of data-centers by accelerating applications and reducing frequently accessed data. ioTurbine offloads data from expensive traditional storage to high-performance flash in enterprise servers. There is much conflict over access to shared storage systems, resulting in slowdowns; ioTurbine will protect enterprises from this slowdown, thus creating a more-efficient data center. Along with the update, Fusion-io announced the Fast Flash program for consultation between the company and ioTurbine clients. This will help assess the customer's workloads and integrate support for different devices.

Fusion-io has many large-scale customers expanding storage capacity to accommodate their organization's data load. They will be looking for more processing solutions to analyze the data, and this is where Fusion-io's caching software plays a key role. It scales up the data processing on the server without any disruption and allows clients to continue to use Storage Area Network, or SAN, to meet storage capacity requirements.

The biggest challenge for Fusion-io is the intense competition in its industry. Storage vendors such as NetApp (NTAP) and EMC Corporation (EMC) have launched software to use flash in their products. NetApp launched a new All-Flash array storage system, EF550, for sensitive data Web services and business applications in November. The company also released storage array E2700 and updated E5500 array. This will allow NetApp to target a wider audience with its E-series portfolio, an audience that wants the speed from flash solution. EMC also launched its first All-flash array XtremIO in November. EMC's XtremIO will boost performance of data centers and offers duplication, data protection, and efficiency improvements.

There is greater demand of flash array storage since traditional hard disks have failed to give the required performance due to a rise in Big Data and cloud storage. Organizations are now more inclined to adopt flash array in their data centers. The flash array market is expected to grow at a CAGR of 58.5% and reach $1.2 billion by 2015.

Both NetApp and EMC will continue to gain share from competing storage vendors due to the increasing adoption of flash storage. Meanwhile, the competitive landscape will drive shares of these companies up or down. With big-storage vendors getting into all Flash arrays, investors are increasingly concerned about the company's flash array strategy. Fuison-io faces major challenges, including increased competition from EMC and NetApp, flash deployments, and its strategy to address the market.

Taking advantage of Big Data

Fusion-io is partnering with Sqrrl, a software provider, to accelerate big data workloads. Sqrrl's big data platform, Sqrrl Enterprise, is powered by Apache Accumulo and Hadoop, which will be integrated with Fusion ioMemory. This will scale up big data systems to increase performance by up to ten times. Traditional Accumulo used DRAM, which was costly and limited in the number of DRAMs that could be added to any systems. During testing, the combined system of Sqrrl and Fusion-io averaged 48,000 transactions per second compared to just 4,759 transactions per second with DRAM and disks. Thus, high performance and low cost will significantly reduce capital and operational costs associated with DRAM and disks.

In server benchmarking reporting, nine out of ten OEM partners have used Fusion's ioMemory signifying its popularity among its OEM partners. Along with existing partners, Fusion-io has been also forging a new OEM partnership with Fujitsu. This will provide some relief and reduce its over-dependence on two of its biggest customers, Apple (AAPL) and Facebook (FB). These two combined, contributed around 50% of Fusion-io's total revenue last year, and their reduced investment in Fusion-io's products is hurting the company's revenue. Fusion-io continues to grow in the enterprise market, evident from the demand of its top OEM partners, HP, IBM, and Dell, which each accounted for greater than 10% of total revenue.

Bottom-line

First-quarter results did not delight investors, as revenue declined by 27% year over year, and the departure of top management and sustained revenue deterioration point to a bumpy road ahead. Though flash-based systems show potential to increase revenue, the prospects of increased competition may lead to Fusion-io's product to lose its competitive position in flash-based storage. However, I am optimistic about company's strategy to focus on the OEM channel, and its expansion will likely diversify its revenue across a wider base of enterprise customers.

Source: Can Fusion-Io Survive The Competition?