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Fusion-io (FIO) looks on the surface to be a tech investor’s dream. It counts Steve Wozniak, patron saint of tech nerds and co-founder of a little company called Apple Inc. (AAPL) , as an employee. It’s engaged in data storage, the exponentially growing field of dealing with the terabytes of exponentially accumulating data produced by the world’s computers. And it had the backing of New Enterprise, one of the most lauded venture capital firms in the world.
But a great business on paper does not always translate into a great success story. And Fusion-io has been quite the opposite of a success story, to say the least. Since its iPO, Fusion-io has consistently turned in subpar earnings reports and failed to make a dent with its ultra-high end storage devices. Although the Big data market is there, they could never match the promise of their pedigree.
All that changed on June 16, when Fusion-io entered into an agreement with rival SanDisk (SNDK) to sell out for $1.1 billion. The markup represented a 21 percent premium on shares, erasing much of the year’s stock loss. It also represented a significant markdown from the $19 a share at which Fusion-io IPOed at in 2011.
The company never did live up to their hype, and investors who stayed in for the long haul had to take a hit with the SanDisk deal. But despite coming in at two-thirds their original valuation, the saving throw from SanDisk also showed continuing faith that the data storage business had room to grow.
Big Data Rears its Big Head
Specifically, where SanDisk sees growth is in enterprise. Fusion-io’s products aren’t for the average consumer looking to backup their personal computer. Their state-of-the-art drives can run into six figures. Their business is the business of Big Data, or helping companies store and eventually parse the terabytes of data they accumulate. For businesses looking for an edge, Big Data packs the promise of a seer’s ball, a way to divine customer trends from the data at hand. Market research with a Moneyball edge.
Like any lumbering company getting snatched up, the question is “Why?” If Fusion-io’s business model is the wave of the future for businesses, then how come they’re not raking in the bucks? If they're on the cutting edge, how come they're not putting up Apple-circa-2006 numbers?
And like any lumbering company getting snatched up, the answer is “Because leadership.” Fusion-io’s founders, CEO David Flynn and CMO Rick White departed abruptly in May 2013, shaking confidence in the company. The departure of CFO Dennis Wolff that October further rankled investors.
SanDisk as Market Leader
While Fusion-io sank, its competitors surged. Specifically, their new overlords over at SanDisk. Shares of that company have risen 70 percent in a year as they have emerged as a market leader in the field.
This puts a spotlight on another small-cap competitor, Violin Memory (VMEM) . While Violin Memory hasn’t struggled quite as much in the market as Fusion-io has, Violin still looks to be a ripe takeover target. As noted by Venturebeat, Violin has had their own share of “brain drain” with key team member Don Basile departing in December 2013.
SanDisk’s buyout of Fusion-io is expected to close sometime in the third quarter for $11.25 a share. Fusion-io’s stock closed June 16 trading slightly ahead of that number at $11.36 a share.
Shares of SanDisk climbed 3.58 percent to hit an even $102 a share on the day. With an expected $1.7 billion cash on hand remaining after the deal closes, SanDisk will still be certainly capable of continuing to assert their powerful position in the data storage biz.