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Backed by venture firms NEA and Lightspeed, Fusion-io (NYSE:FIO) markets a next generation storage memory platform that boosts data access speeds. The company plans to raise $209 million in its IPO by offering 12.3 million shares at a proposed price range of $16 and $18; it had originally filed to offer shares at $13 to $15 before boosting the price range by 21% in a sign of strong deal demand.

At the midpoint of the upwardly revised range, Fusion-io would be valued at $1.7 billion. Fusion-io plans to price today (Wednesday) after the market close and list on the NYSE on Thursday under the ticker symbol FIO. Goldman, Sachs & Co., Credit Suisse, Morgan Stanley and J.P. Morgan are the lead underwriters on the deal, which is one of three deals scheduled to price on this week's US IPO calendar.

Background

Fusion-io seeks to address what it refers to as the "data supply problem," or low levels of server utilization caused by the widening gap between processing and storage performance. It markets a data decentralization platform that helps enterprises improve processing capabilities by relocating "active" data from centralized storage to servers, thereby improving processing capabilities by up to 10x and significantly reducing costs. Its platform, which bundles proprietary hardware and software, has been shipped to over 1,500 end users since inception, including companies such as Facebook and Apple (NASDAQ:AAPL), as well as OEMs like Dell (NASDAQ:DELL), HP (NYSE:HPQ) and IBM (NYSE:IBM).

Financials

Fusion-io booked $126 million in the nine months ended March 30, 2011, quadrupling the $25 million generated in the year-ago period. Facebook accounted for 47% of revenue, while its ten largest customers accounted for 91%. The company turned profitable with $7 million in EBITDA but remained cash flow negative (-$2 million) due to increasing levels of inventory. It expects to drive further growth by adding software capabilities, deepening customer relationships, growing its sales force and expanding internationally (18%).

Risks

Fusion-io has experienced rapid growth throughout its relatively short operating history, highlighting the value of its first-to-market data storage platform. That said, it carries execution risk as a small company with an accumulated deficit of $70 million. Furthermore, most of its business is derived from large-scale data storage installation projects rather than repeat purchases, resulting in highly volatile financial results, which is magnified by its high degree of customer concentration. For example, Fusion-io expects revenue to fall sequentially in the FY4Q11 following large orders by Facebook in the 3Q. Lastly, it competes with traditional storage/software vendors, as well as various privately held companies that are developing similar technology.

Outlook

With a unique product and massive addressable market opportunity, Fusion-io should spark investor interest, especially in the wake of acquisitions of fast-growing storage and networking companies such as Compellent, Isilon, Netezza and 3PAR. Fusion-io may also benefit from its connection with Facebook amidst ongoing buzz in the social media space following Groupon's (NASDAQ:GRPN) recent IPO filing.

Source: Fusion-io IPO: Unique Product, Massive Addressable Market Opportunity