Partnerships, pitfalls and the markets' verdict
Fusion-io is working with partners such as SAP and Microsoft to embed and demonstrate its products in their products, such as SAP HANA and appliances from Cisco, Dell and HP. It seems to El Reg's storage desk that Fusion-io knows that software is the real value it has to generate as PCIe flash hardware becomes commoditised and, El Reg thinks, is eventually replaced by DIMM-like flash cardlets. It is open-sourcing some of its software IP to encourage overall demand increases for its software products.
Naturally, Fusion-io is trying to add more hyperscale customers to lessen dependence on Facebook and Apple whose order patterns can be erratic. CFO Dennis Wolf illustrated this:
Apple contributed less than 10 per cent to revenue in Q4. Facebook demand was higher in Q4 than we had anticipated at the beginning of the quarter. And one new large customer shifted an anticipated order from Q4 to the first half of fiscal 2014.
That would make commission-chasing sales reps quite unhappy.
Robison mentioned LinkedIn, the UK's NHS, Pandora, Spotify, Alibaba, Alipay, China Mobile, and salesforce.com as new potentially large-scale customers.
All this work-better-with-the-channel stuff takes time – several quarters, even – before it shows tangible results.
El Reg thinks Fusion-io's competitive environment is going to get much tougher as competitors, serious competitors, pile into the server flash market. Intel, LSI, Micron, Samsung, SanDisk, and Violin Memory are some of them, with WD's HGST unit getting PCIe cards from sTec if that WD acquisition goes ahead. SMART has just introduced its own ULLtraDIMM server flash memory product that gives faster access to data than PCIe flash, and is more scalable, SMART says. We understand OEM qualifications are underway. Then there is QLogic with its Mount Rainier technology, adding flash caches to its HBAs and CNAs.
The low-hanging PCIe flash card fruit days are long gone and it's not clear that Fusion-io understands the depth and breadth of the competition it faces in the server flash market, as well as the server PCIe flash market.
Fusion-io says we should expect revenues of $80 to $90m next quarter; 20 per cent less than the current quarter. Yet it guides Wall St to expect full 2014 year revenues to be 20 per cent higher than fiscal 2013. This means that the second, third and fourth quarters have to be very good.
Analyst Jason Ader of William Blair & Co. said:
Management went on to provide revenue guidance for fiscal 2014 that was roughly $43m below the Street target. Taken together with management's weak top-line guidance for the fiscal first quarter of a 28 per cent year-over-year decline ($39m below the Street estimate), the annual guidance requires a sharp acceleration in revenue past the first quarter (about 30 per cent sequential revenue growth in fiscal second, third, and fourth quarters), which we believe will be tough to achieve.
Robison says Fusion-io has done its sums; these numbers are believable. The shares have taken a hit though, and analyst classifications of Fusion have gone from Buy to Neutral or Hold as they digest the management's track record, its lack of strategic flash foundry chip supply arrangements and the competitive environment.
The danger is that Fusion-io is an sTec-like company, squandering a potential market-leading position by refusing to recognise that times are changing until it's too late. No one knows, of course. It's Robison's first reporting quarter and he has no track record as a CEO. He has a track record as a technology vice-president and an acquirer of businesses, such as Autonomy when he was at HP (and, yes, didn't that turn out quite so well). Maybe an acquisition of a flash software company is the ace up his sleeve.
Fusion-io shares have tanked over the year; in fact, they've declined since the IPO two years ago. The latest results were followed by another drop. The clock is ticking on impatient investors' desks. ®
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