Fusion-io, Inc. (FIO) priced their 12.3 million share IPO above the revised range at $19.00. The original range was $13-15 and on Tuesday the company revised the range to $16-18. Of the shares offered the company is selling 10.76M shares and selling stockholders are offering $1.54M shares. Proceeds are expected to be used for working capital and general corporate purposes (including possible acquisitions or investments in other businesses, technologies, or assets). At the $19 price, the company will have a market capitalization of approximately $1.48B. The underwriters on the offering are Goldman, Morgan Stanley, JP Morgan and Credit Suisse. Post offering venture capital investors New Enterprise Associates and Lightspeed Ventures will own approximately 33% and 11% of the outstanding shares (neither firm is selling on the offering).
Fusion-io is a next generation storage memory platform that targets the performance gap between increasing processing capacity and legacy data-central architecture using centralized storage. They cite that 37% of servers within the data center are underutilized and are idle 80% of the time. As data demand continues to increase and processing performance has doubled every 18 months, the legacy data-central architecture using centralized storage cannot effectively supply the increasingly large quantities of process-critical data quickly enough to fully utilize the processing capacity of today's servers. This performance gap between processing and storage performance continues to increase.
The company's solution offers a mix of hardware and software and starts with the miniaturization of San with the use of flash. Their platform allows customers to increase utilization, performance and efficiency while reducing their footprint within a datacenter. They are able to achieve up to 10x the throughput per server, while reducing costs and consuming less energy.
Fusion-io has over 1,500 customers which they target primarily through their direct sales force, as well as through OEM's and other channel partners (VAR's and SI's). They do however have some significant concentrations as sales to the 10 largest customers in 2010 represented approximately 75% of revenue. Facebook is their largest customer and they represented 47% of revenue for the last 9 months ended March 31, 2011.
Fusion-io describes their target market as the estimated $260 billion of existing annual data center inefficiencies. Traditional data center spend is approximately $1.24 trillion annually and the company says that approximately $260 billion of that spend is value wasted waiting for data. Thus the potential lean data center spend would equate to approximately $980 billion.
The data storage market is highly competitive. Fusion-io competes with traditional data storage providers as well as enterprise solid state disk vendors including NetApp (NTAP), EMC (EMC), Xyratex (XRTX), Qlogic (QLGC), Brocade (BRCD), Hauwei, Seagate (STX) and STEC (STEC). There is also a number of emerging "Flash in a Box" startups. The company believes they have a first mover advantage with a number of existing and pending patents with their disruptive new data center architecture.
The company has rapidly grown revenue from $648 thousand in fiscal year 2008 to $36.2 million in fiscal year 2010 (fiscal year ends June 30). For nine months ended March 31, 2011 revenue was $125.5 million up from $25.3 million in the same period 2010. Facebook accounted for 52% of their revenue in the last quarter due to a significant upgrade investment and the company expects revenue will decline sequentially for the June quarter primarily due to a decline in revenue from Facebook. The company had a non-GAAP operating margin of 14% in the quarter ended March 31, 2011 and their long term target is for a margin of $20-25%.
Despite the customer concentrations and highly competitive storage market in which they compete, the investor demand is clearly there for the Fusion-io IPO as can be indicated by the strong pricing. Thus we expect a solid day one debut from the company.
Disclosure: I may initiate a long position in FIO in the next 72 hours.
