How does Fusion IO get out of the mess they are in. What direction will they take? How does the competition look now? Can they survive on their own? What is the gross margin and profitability expectation? How do they fix their issues? Will they be bought out?
3. Presenter’s Background
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A specialist within the Semiconductor, Software and Internet technologies industries
Have designed some of the world’s best Tablets, Smartphones and PCs for companies such as
Apple, Samsung, Google Amazon, Dell, hp and LG.
I specializes in the following areas:
· Networking (WiFi, LTE, 4G) – Broadcom, Qualcomm, Atheros, ZTE, MediaTek
· Communications (baseband, small cells, 3G/4G overlay) – Mellanox, Cavium
· I/O (touch, gestures, oncell/incell, ITO) – Samsung, LG, Synaptics, Cypress, Atmel, TI
· Displays – (IGZO, AMOLED, LCD/LED, Flexible) – Sharp, LG, Samsung, Sony, Corning
· Server/Data Center – cloud computing, storage, big data
· Speech/Voice navigation – Google, Microsoft, Nuance, Siri
· CPUs (ARM, MIPs, x86) - Qualcomm, Intel, AMD, MediaTek, Imagination Technologies, nVidia, Apple, Marvell
· Operating Systems (Android/Windows/iOS/Mac) – Google, Microsoft, Tizen
· Storage (HDDs/SSDs, Flash/RAM) – Fusion I/O, Virident, OCZ, EMC, Seagate, WD, LSI, Micron, Sandisk, TDK, NAND
· NFC/RFID – NXP Semiconductor, TI, ST Micro, Infineon
· MEMS Controllers (Gyro, Accelerometer, GPS) – Invensense, ST Micro, Phillips, AMS
· PC – Dell, hp, Intel, Microsoft, Best Buy, Acer, Asus, Lenovo
· Battery Technologies – Inductive charging, fuel-cells, solar, alternative energy supply, Li-Ion/Li-Polymer
· Accessories – tablet keyboards, cases, audio enhancers, disposable
· Wearable devices – Google, Fitbit, Jawbone – *HOT* and emerging
· Audio/Video controller – Cirrus, Wolfson, ATI, Imagination technologies, nVidia
· Advertising – Zynga, Facebook, Yahoo, Google, Microsoft, Comcast and Yoku
· Business processes – development, procurement, logistics, Bill of Materials (BOM)
· Commerce – retailers, e-tailers, hybrid delivery model – Amazon, Best Buy, Walmart, Apple
4. TREND: The Big Data market is poised to grow to more than $50 billion by 2017…
Why Flash and PCIe?
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Courtesy: Forbes
Big Data requires fast storage systems
Cloud-based services
are becoming
mandatory in the
enterprise world…
Examples of “Big Data” sources:
• Google’s search and ad business and its experimental robot cars, which have
navigated thousands of miles of California roads
• Apple’s Siri with customers ‘feeding’ it queries by the thousands daily
• Facebook posts, Twitter messages, and Instagram photos
• U.P.S., mines data on truck delivery times and traffic patterns
5. TREND: There never has been any doubt on SSD performance – the issue has historically been
one of cost and types of data that will be managed on the PCIe side (hot vs cold)…
Why Flash and PCIe?
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Existing hard-disk storage
technologies are nearing their
performance limitations.
Thus the spotlight on solid-state
memory as the technology to take
over high-performance storage
arrays.
2-5x Cost Difference
6. TREND: With all the data we store growing by ~60% yearly, there is an obvious need for ways to
make all that information usable by companies that are in the storage business today.
Industry Moves
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Violin Memory Filed for $180M IPO
STEC Acquired by WDC for $340M
Skyera Received $50M from WDC
Virident Acquired by WDC for $685M
WhipTail Acquired by Cisco for $415M
TMS Acquired by IBM – undisclosed
OCZ Technology Rumored to be final phases of being acquired
Fusion I/O Rumored to be targeted by STX and EMC
7. TREND: Typically markets of this size are served by large scaled OEMs and vendors, so expect
Cisco, EMC, hp, etc as owning the bulk of the opportunity over the next few years.
Fusion IO | Market
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Optimized Server
Segment: (targeted
by OEMs)
• IDC predicts
that by
2016, the
enterprise
segment will be
$78 billion.
Hyperscale Market:
(targeted by FIO’s
Direct Sales Team)
• IDC expects it
to to $43 billion
by 2017.
8. TREND: This is likely the main catalyst for the management changes as FIO’s business model was
a hybrid of channel and direct with mismanaged channel partners.
Fusion IO | Channel
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• Channel conflict challenges centered around pricing inconsistencies
between direct and OEM products.
• ioControl product, suited for the mid-market and is exclusively sold through
the value-added reseller channel. (positioning Dell, hp, OEMs out of SMB)
• OEMs qualification cycles 4-6 months but FIO has roadmap updates in
between that cycle and thus disrupts lead times with customers like
Cisco, NetApp, etc.
$18,000 - $22,000 via reseller
9. TREND: LSI and OCZ are now qualified at several of FIO’s top customers, however, they are less
than 10% of the mix so FIO has not felt the severe effects yet.
Fusion IO | Customers
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• Historically commanded ~60% margin on their products
• Was driven by : (1) intelligent software component, (2) service and support
and (3) high $ spend marquee customers like Apple or a Facebook
• That is not sustainable now due to:
• customer concentration
• increasing competition
• Will have to significantly lower pricing for ioScale in order to attract
hyperscale customers large enough to move same type of volume they
historically have
• Lastly – marquee accounts are qualifying other vendors as well…
10. Fusion IO | Profitability
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• Customer/market transition is coming at the cost of gross margin
2011-2012
• 55-60% gross margin on product
• 20-25% operating margin
• Rising NAND flash prices will add pressure to margin until the switch to
20nm nodes kick in by the end of 2014
2013-2016
• 40-50% gross margin on product
• 15-20% operating margin
12. Tip: Do not expect a huge valuation premium because this is still just Flash with software which
the NVMe will standardize one – so FIO must charge less very soon….
Fusion IO | Potential Suitors
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Large cap companies that are looking for positioning for that
growth in big data and are slow growing organically:
• IBM
• Intel
• EMC
• Oracle
• Hewlett-Packard
• Cisco
• NetApp
• Seagate
• Western Digital
• Toshiba
• Private equity
13. Summary | Expectations Moving Forward
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1. Big Data growth will be supported by large scale OEMs
2. Significant margin pressure due to competition, price reductions.
3. No cost relief till 2014 2nd half when 20nm nodes yield in volume.
4. Channel relationships will be fixed but channel qualification cycles will change.
5. In order to support wider customer based, Opex will increase.
Big Questions Remain:
• Facebook revenue was 36 percent of sales in the first quarter and Apple was below 10 percent. Those
two companies have historically used Fusion-io hardware and software in their data centers, but
appear to be tapering purchases.
• Channel conflict. Fusion-io relies on companies like HP, IBM and Dell to move its wares. The problem is
Fusion-io's OEM relationships are strained. Fusion-io has priced products differently for direct vs. OEM
sales and its products are competing with the same partners it needs to drive revenue.
• Fusion-io must sacrifice margin to gain share and be more aggressive about pricing. The company will
also focus on three areas: Enterprise, hyperscale and SMBs.
14. Rather than replacing HDDs, SSDs and flash memory are enabling new devices and new
applications, and increasing the demand for storage of digital data on more cost-effective HDDs.
The result is the overall demand for HDD storage capacity continues to grow at over 40 percent
a year compounded. Driven by:
Content from mobile devices Thin and light notebooks
Overall Industry will be Hybrid till 2016
Tip: Synchronizing data across multiple devices will help fuel the growth in both types.
