Flash Madness: Fusion-io IPOs Thursday, but First Violin Raises $40M
This week is going to be a big one for companies in the business of bringing flash memory chips to the data center. The main event will be the Thursday IPO debut on the New York Stock Exchange of Fusion-io, a company I’ve written about here numerous times.
However, as a warmup, another flash company, Violin Memory, announced today that it has closed a $40 million Series C round of funding at an implied valuation of $440 million. Violin, based in Mountain View, Calif., is run, oddly enough, by Don Basile, a former chairman and CEO of Fusion-io. Obviously, he will be watching that company’s opening days of trading with significant interest, presumably because he still has some equity in it, but also because of the implications for his new company, which he’d like to take public as well.
Where Fusion-io sells flash-based cards that make servers run faster–Facebook and Apple buy them for use in the servers running inside their data centers and between them constitute about 70 percent of its revenue–Violin sells flash-based memory arrays that are intended to replace the hard disk-based memory arrays that make enterprise applications run faster. Violin’s arrays come in a range of sizes from tens of terabytes up to hundreds of petabytes, and are said to significantly speed up Oracle and other databases by a factor ranging from 10 to 100 depending on the situation.
HP has set speed records running Microsoft’s SQL Server using Violin arrays, Basile told me. Not only does it speed them up, but the Violin arrays eliminate 80 percent of the required hardware footprint and reduce the necessary power by 90 percent, cutting back on operational costs. Hewlett-Packard resells Violin arrays, and AOL is a big customer, Basile told me.
Violin hasn’t been raising money via the traditional venture capital route. Its investors have included Toshiba, the Japanese electronics concern that happens to be a big manufacturer of flash memory chips used in the arrays, and Juniper Networks. It has also taken money from large funds that dabble in private investments, and from several wealthy individuals, among them Atiq Raza, the former number two at Advanced Micro Devices, Arjun Gupta, the founder of TeleSoft Partners, and venture capitalist Dixon Doll. Basile has taken investments from nine such individuals, and these are only three that he named. He also stressed that they are personal investments.
Violin raised $35 million earlier this year in a Series B, and raised $10 million in a series A last year. In addition, the company has $140 million in combined debt and credit, giving it a combined $180 million to fund its operations and growth for the foreseeable future. The company expects to do more than $100 million in revenue this year.
Still, Basile would like to go public, and will be watching the IPO both of Fusion-io and of Groupon to see how the market reacts to them. If they react well, he says he plans to hire bankers by the end of the summer. “I don’t have a compelling reason yet, but if the markets react favorably it would be in our interest to look at the public option very seriously,” he said.
Meanwhile, Fusion-io will debut under the trading symbol FIO on Thursday. You can expect CEO David Flynn to make the rounds with a series of interviews tomorrow on CNBC and elsewhere. When last heard from, the company said in an updated S1 filing with the U.S. Securities and Exchange Commission that it expected to price in the range of
$13 to $15$16 to $18 a share, in order to raise $185 million. A price in that range would value the Utah-based company north of $1 billion $1.4 billion (see today’s latest updated S1 filing here). It is one of two companies set to go public on Thursday, the other being Taomee Holdings, a China-based company that produces media for children.
As Dow Jones Newswires noted yesterday, Fusion-io’s debut is coming against the backdrop of a market that has been declining in recent weeks, giving it a certain headwind. And there’s already been plenty of criticism of Fusion-io’s prospects. As noted, two customers, Facebook and Apple, account for about 70 percent of revenue, while 10 customers account for more than 91 percent of revenue. (The Wall Street Journal commented on this in March.) As risks go, a concentrated set of customers is a classic one. If one or two suddenly stop buying–a fair risk when you consider that Facebook and Apple will soon complete construction of their respective data centers–then sales can drop just as suddenly. Investors like seeing a large, diverse customer base.
I asked Basile about that and whether the same long-term risk applies to Violin. “It is a legitimate risk,” he says. Violin doesn’t have the same kind of concentration. While AOL is a big customer, he says, Violin has no significant customer who accounts for more than 50 percent of sales. Its revenue splits roughly even, with about half of its sales coming from “channel” customers who build Violin’s memory arrays into their own products, while the other half buy Violin products directly to integrate with systems they’ve purchased from other vendors.
Then he pointed to language in Fusion-io’s S1 filing as a way of making a point about the wider prospects for flash memory use in the data center. Yes, Fusion-io has a handful of big customers, but it also has more than 1,500 end-customers. Among those are customers of Hewlett-Packard, IBM, Dell and Supermicro, who all sell Fusion-io’s cards as an option on their own servers. Among them they sell about 9 million servers a year, and if you do the math, he says the current run rate reveals that 12,000 of those servers have flash cards from Fusion-io. “That leaves a lot of room for growth.” Room enough for both companies, he said.