Fusion-IO explained and analyzed
Fusion-Io has a pretty interesting and unique product; they bundle flash memory, like the ones in the ipad3 Apple is premiering in two weeks that can be put right alongside existing servers. It’s a pretty deceptively simple idea, but it basically enables servers to access data way, way quicker.
Fusion-IO is still an infant, albeit one that can sprint. After a massive $19 million Series A round in 2008 it picked up Steve Wozniak as an advisor and IPO’d in June of last year, just 6 years after it was founded. Since then the stock hasn’t done much.
But the big players in the cloud space have taken notice of FIO’s disruptive potential and have begun to deploy copies of their products. Just last week EMC unveiled a VFware, their attempt to take flash to the enterprise customer. FIO’s CEO remarked on CNBC:
“We’ve been competing with them [EMC] since we announced the company five years ago and now they’re having to follow our architecture to try and stay competitive. It just shows the migration away from the storage mainframe to a more open model.”
This might just be some corporate tough-speak but in talking to industry insiders and reading what the CEO has said in trade publications I’m convinced that Fusion-Io has a technical edge. And EMC is definitely playing a game of catch-up. Their products that mimic FIO are lacking in some pretty basic functionalities and I anticipate they’ll be getting some pushback from IT departments. We’ve seen this playbook before, when a tech leader pushes out a half-finished attempt to compete with flashy product that everyone covets. Quite literally: the Blackberry Playbook.
FIO just reported a blistering 169% jump in revenue and a slightly wider than expected loss. I want Fusion-IO to focus on growing share and that top-line, after all this is still a young company with huge upside; I’m willing to tolerate a few quarters of minuscule losses relative to the potential over the next couple years. This is going to be a choppy position and you need to price volatility into your expectations. Keep your tuition & down payment cash out of FIO, this is for the long haul.
And there’s a great catalyst for the stock, one of FIO’s biggest customers is going public: a little startup called Facebook. Armed with a $10 billion IPO haul Zuckerberg & Co. will be spending on cloud power to sign up the remaining 5.5 billion humans that aren’t poking each other yet.
That’s fundamentally what FIO is about; it’s a company that should see a juicy piece of the the cloud build out over the next decade. I know, you’ve heard this from me for a long while now, but this is a very specific part of the Echo-Techo bubble. As Apple and Google go to war over competing entertainment ecosystems, you want to be in names that supply the weapons.
It’s the idea of selling pickaxes to miners during a gold rush. Fusion-Io has at least a one-year head start on the competition; in boom times companies love to acquire companies like FIO at huge premiums to leapfrog, or better yet, tell their shareholders they aren’t the ones getting leapfrogged. When an HP or IBM (both FIO partners) looks at the overall demand landscape, they aren’t concerned at with fluctuations in the hundreds of millions of dollars. They need acquisitions and revenue juicers in the billions just to move the needle. Believe me when I say that FIO is definitely on the radar of about a dozen tech behemoths who likely think it’s easier to buy the whole company than spend time reproducing it.
The 1849 California Gold Rush spawned innumerable mining claims and shifted the U.S.’s economic destiny. Between the first nuggets at Sutter’s Mill through the next half decade it’s estimated that about $5 billion of gold (at 2010 prices) was taken out of the ground. Not a bad chunk of change but how many gold companies can you name from that era? The only remnants today are businesses like Levi Strauss & Co that enabled the gold rush, enabled consumers to spend their newfound wealth on building lives out West and were able to pivot when their original lines of business dried up. And Levi’s did that 1st five years of the gold rush in last year’s topline alone. We want to be in FIO because it has the potential to ride the cloud boom the same way.
Oh, and one quick correction from my positions post yesterday: I’m also long a few Amazon calls. I’ll update the positions and resend to you guys.
