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Violin Memory shares collapse as it files for chapter 11

Shares worth 5 cents and company just $1.5m

+Comment Violin Memory has bowed to the inevitable and made a Chapter 11 filing.

A chapter 11 bankruptcy filing doesn't always signal it's over, but it might mean the early flash pioneer is getting there. Violin Memory's tortured struggle to stay in business now depends upon it streamlining its business further and pursuing a sale.

The shares are worth just $0.0455 and its market capitalisation is just $1.5m.

The sale is going to be a near fire sale – an auction in early January. What an admission of colossal business failure since CEO Kevin DeNuccio took over in February 2014.

The streamlining applies to Violin's operations and balance sheet, which will mean, we understand, reducing jobs, amongst other things.

DeNuccio said: "We are taking this action, which should conclude by the end of January 2017, to bolster Violin's ability to serve the needs of its customers. Violin intends to continue to sell solutions to customers and prospects as well as service and support customers during this restructuring."

Whether anyone will buy anything between now and the end of January is another matter. It's probably a good time to ask for a discount.

The company's assets include 58 filed US patents and 24 pending ones, and 64 foreign ones with 38 pending, its recurring service revenue and its customer base, "that includes some of the largest enterprises in the world,” but clearly not enough of them.

Some history

Violin's strategy was to build high-end flash arrays using proprietary inline memory modules (VIMMs) rather than commodity SSDs. Under then-CEO Don Basile it also went into PICe flash cards but that was never successful, with the business eventually being sold off to Toshiba.

Basile, appointed in September 2009, took the company to an IPO in 2013. This turned out to be a disaster with the shares slumping more than 60 per cent when dreadful quarterly results were announced, and Basile being fired in December 2013.

When DeNuccio was hired he was confident that he and the exec team at Violin could increase shareholder value. He, and the execs he hired, did exactly the opposite.

Activist investor Clinton Group said it had five informal offers for the company. The board and management refused to see things Clinton Group's way and so here we are.

Reg comment

Where did it go wrong? Violin pioneered the all-flash array but it introduced an all-DRAM appliance in April 2008. with the 4TB all-flash 1010 memory appliance appearing in November 2008. Its competitors were Texas Memory Systems, acquired by IBM, and Fusion-IO, bought by SanDisk.

The high-end strategy was let down by inadequately fast hardware, allowing others, like Kaminario, to claim the performance high ground. Another self-inflicted wound was a failure to appoint top-rank professional experienced sales heads. They were appointed in regional positions but not at the top, with technically skilled people like Said Ouissal appointed instead. He arrived in June 2015 and has now left.

Violin was also late with delivering deduplication and had to add it with a separate box alongside its flash array, making life tougher when competing with all-in-one boxes from its competitors.

Its financial weakness since its IPO limited its ability to develop its hardware and software, and a choice not to pursue the mid-range market energetically and with determination. This condemned it to high-end enterprise sales hell with long sales cycles as it tried to explain its complicated advantages against simpler and easier-to-explain choices from its competitors. These included the storage incumbents who all poured flash array technology into their product lines. And these competitors, like Pure Storage, came up with better business models too, compounding Violin's disadvantages.

The key responsibility must be the CEO's. DeNuccio's confidence that he'd picked the right execs, read the market, and could rescue the company, was completely misplaced. With hindsight, Violin needed a fresh CEO and recapitalisation to fund engineering development in a more sensible direction. The board chose the wrong strategy.

Poor, poor Violin Memory. You had good kit once. Now you have become a distraction in the all-flash array market. You're toast. ®

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