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Fusion-IO (NYSE:FIO), a leading developer of flash storage solutions for enterprise use, reports earnings for FQ4 2012 on August 9, 2012. I believe that given the high short interest and the general volatility of the stock, there will be a large move in share price following the report.

The consensus analyst estimate for earnings per share is $0.04, with a range of $0.02 to $0.08. The company guided revenue flat for the current quarter, which comes in at about $88.3M. Further, the company guided non-GAAP gross margin of 53% - 55% and a non-GAAP operating margin of 3%-5%.

The Long Case

The company is one of the leading developers of enterprise flash storage solutions, a field that is rapidly growing as data centers and enterprises demand higher performing and lower latency storage. Further, the company differentiates itself with a competitive advantage that lies in its software suite. This is conducive to maintaining high gross margins, and as revenues ramp, this should, long term, translate into strong profitability.

Further, the company has design wins with a number of high profile clients and partners including Apple (NASDAQ:AAPL), Cisco (NASDAQ:CSCO), NetApp (NASDAQ:NTAP), and Facebook (NASDAQ:FB).

Finally, due to the unusually high short interest on the stock (greater than 20% of the float), any upside surprise could trigger a significant squeeze. And since the stock is near 52-week lows, the upside potential is high in such an event.

The Short Case

There are three major points that I see here. First and foremost, insiders have been selling their shares at an alarming rate. It also didn't help that the company issued a secondary offering a few months after the IPO.

The second point is that the competition in this space is going to be heating up. OCZ Technology Group (NASDAQ:OCZ), LSI (NASDAQ:LSI), SanDisk (NASDAQ:SNDK), Western Digital (NASDAQ:WDC) via the recent Hitachi acquisition, and others are making plays in the enterprise flash storage segment. This could potentially drive down gross margins and/or lead to weakened revenue growth.

Finally, the company seems to be priced to perfection. While gross margins are strong, operating and net margins are still not attractive (but we must keep in mind that a high growth company is not expected to be very profitable at first). Any hiccup in revenue growth or gross margins could be viewed negatively by the investment community and could result in a significant share price decrease.

Disclosure: I am long FIO, OCZ.

Source: Fusion-io's Upcoming Earnings Report: What You Should Know

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