Fusion-io’s Inorganic Growth

According to a market report, Enterprise SSDs: Technologies and Markets, the market for enterprise solid state drive (SSD) is projected to grow 59% annually from 382,000 units in 2011 to 3.9 million units by the year 2016. The report predicts that enterprise SSD market revenues will grow at an average annual rate of 43% to $3.5 billion by 2016, up from $582 million in 2011.
Fusion-io’s Financials
The storage solutions provider for big data companies, Fusion-io (NYSE: FIO), is counting on this market growth. Despite the high growth projections for the industry, Fusion-io saw Q3 revenues fall 7% over the year to $87.7 million, ahead of the market’s target of $80.4 million. They attributed the decline in revenues to the fluctuation in volumes of large orders that is typical of their industry. Loss per share of $0.03 was also ahead of the Street’s projected loss of $0.07 per share for the quarter. Fusion-io did not specify the revenue contribution from their two largest customers, Facebook and Apple, but they continued to work toward diversifying their customer base. During the quarter, they added other big  names like Box and Spotify to their customer list.

For the current quarter, Fusion-io expects revenues of $110 million, with non-GAAP operating loss of $5.0 million. The market was looking for revenues of $107.7 million for the quarter, with an operating loss of $14.8 million. The company expects to end the year with revenues of $435 million and non-GAAP operating margin of 7.0%-8.0%. These revenue projections were ahead of the Street’s target of $427 million.

Fusion-io’s Acquisitions
As part of their market expansion,  Fusion-io is now looking at inorganic growth. Last month, they announced the acquisition of hybrid storage appliances manufacturer, NexGen Storage, for an estimated $119 million. Colorado-based NexGen manufactures storage systems that integrate disk drives with flash memory chips. Fusion believes that NexGen’s products will complement their own software-defined storage portfolio of products.  Fusion has always focused on bigger organizations and not approached the SMB segment. The  acquisition will help them expand within the small and medium business (SMB) segment.

At the end of the previous quarter, they also acquired the British software defined storage (SDS) firm, ID7. ID7 was known for software that enables storage systems to communicate with interface technologies. ID7 was also a major contributor to the open-source software project, SCST, a Linux storage software subsystem used by storage vendors. ID7’s offerings offer features such as replication, thin provisioning, de-duplication, high availability, and automatic backup on any Linux server or appliance. The terms of the deal were not disclosed.

Fusion-io’s stock is trading at $14.60 with a market capitalization of $1.41 billion. It touched a high of $32.63 in October 2012.