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Making A Play For Fusion-io With Proceeds From Acme Packet Windfall

|About: Fusion-io, Inc. (FIO), Includes: APKT

The details are well chronicled of Oracle's (NYSE:ORCL) acquisition of Acme Packet (NASDAQ:APKT) for $2.1 billion in cash, or $29.25/share. Cyberspace is flooded with articles on the subject, and Bloomberg provides a succinct synopsis of the buy-out. It's like a pig in a python. I've been covering Acme Packet since it was a show dog for the momentum crowd, and crossed the tape at over $80/share. I recommended buying the stock when it dropped to $25, and also owned it in my personal account with an average price of $23.

It was a good day for me when I sold my shares for a roughly 25% profit in a little under a year. However, I was a disappointed with Oracle's tuck-in acquisition of the company. I really thought Acme Packet would double or triple in three years, getting back to their glory days, netting me a handsome profit. What's done is done. Acme's Board of Directors unanimously approved the transaction. The deal is expected to close in the first half of this year (subject to stockholder approval).

So what to do with the proceeds? For my personal account, the simple solution was to place a $14 limit order on Fusion-io (NYSE:FIO). If you aren't familiar with Fusion-io, they provide an enterprise storage memory platform. Basically, it's flash memory that is replacing disc drives in the data center. I've been covering the company since it had a blowout quarter in August of last year. I thought the equity was expensive back then when it traded at about $32, and still feel it's overvalued at $17.50. This stock was elevated to icon status, and got special treatment because of their two main customers, Apple (NASDAQ:AAPL) and Facebook (NASDAQ:FB).

These two impressive clients account for 50% of Fusion-io's revenues, and here is where the problem lies. Both of these tech bellwethers are expected to contribute flat revenue streams to the company for the next two quarters. Although these are leading edge organizations as far as technology adoption, they aren't going to do too much for Fusion-io's top line till the second half of the year. With a market that may be topping, and lack of visibility for the next quarter or two, I'm gambling that I can purchase shares for a lower price.

So what do I like about Fusion-io? Superior technology. My previous post about the company highlights their speedy facilitation of data that is significantly faster than their competitors. That's why Apple and Facebook invest so much in their products. However, their wares are expensive, and Intel (NASDAQ:INTC) has gotten into the game with less expensive computing products. Fusion-io's solution was to introduce ioScale for price conscious customers.

With a technological lead, high-end to low-end pricing solutions, and quality clients (China Mobile (NYSE:CHL) and Pandora (NYSE:P) are also in the mix), I can see where initially, Wall Street was enamored with Fusion-io. What I also like about them for a second half of 2013 play are freshly minted partnerships with Cisco (NASDAQ:CSCO) and NetApp (NASDAQ:NTAP) to sell Fusion's products. That's a lot of boots on the ground. However, those synergies won't come to fruition till later in the year. September is seven months from now, and a lot can happen between now and then.

Before you put any money to work, let's examine some fundamentals. According to Yahoo Finance Analyst Estimates, Fusion-io is projected to lose money the next two quarters if we take the consensus. Last year, they made money, albeit, not much. This fiscal year, the company is projected to make $.18/share. That's a P/E Ratio of 100.

Because it was such a shooting star, Wall Street evaluated the company on revenue growth, not earnings. If we examine the sales econometric, we can see that revenues are declining 14% year over year on a quarterly basis for Q3 which ends in March. It's not till next year (fiscal year ending June 2014), that revenues ramp to a healthy 35% growth clip. I don't want to overstate my thesis, but that is a long time from now, even with a market that is forward looking.

With a 32% short float, you could purchase shares now, and take your chances that not only does the market move higher, but you'll also get a nice short squeeze. I'll stick with my $14 limit order and see if a bag my quarry. I think it's a great company, just not a great valuation.

Disclosure: I am long FB. 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.