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Quick as a flash: SanDisk gobbles Fusion-io for an Instagram (that's $1.1bn)

Who's next into the array world's meat grinder?

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+Analysis The end-game for flash supplier consolidation is in sight: SanDisk is buying Fusion-io for a paltry $1.1bn.

The bare bones are:

  • All-cash transaction for $1.1bn, tendering $11.25 for each Fusion-io share.
  • Both boards are in favour.
  • Fusion’s PCIe flash card and ioControl shared flash array businesses will be integrated with SanDisk’s other enterprise flash acquisitions and business.

Fusion’s shares just jumped from $9.28 to $11.36 on the news. One point one billion is a paltry amount, it seems to us, for a business with a half-billion-a-year revenue run rate. While it is making losses – $38.2m last year and $80m this year with a quarter to go – it has the leading position in server flash storage, with LSI a distant second, and that has to count for more.

The acquisition will give SanDisk an immediate, high-profile and strong PCIe flash card hardware and software product line.

Gartner said Fusion was fifth overall in the enterprise SSD market (SSDs + PCIe flash), behind fourth-placed SanDisk, which has virtually no PCIe presence.

SanDisk has a $6bn annual revenue run rate and made a billion dollar profit last year. It certainly is in a healthy state.

Over the past couple of years SanDisk has bought:

  • SMART Storage for its SSDs and flash DIMMs for $307m July 2013,
  • FlashSoft for PCIe flash aching software in February 2012, and
  • Pliant for SSD controllers in May 2011.

Fusion-io is its largest flash business purchase and sends it up the stack, so to speak. The firm will benefit from the addition of Fusion-io’s leading PCIe solutions to SanDisk’s vertically integrated business model.

SanDisk flash company collector, president and CEO Sanjay Mehrotra was quoted as saying: “Fusion-io will accelerate our efforts to enable the flash-transformed data center, helping companies better manage increasingly heavy data workloads at a lower total cost of ownership.”

Analysis

SanDisk, of course, is hell-bent on penetrating the enterprise flash market, pushing the idea of an all-flash data centre.

Fusion has just announced its third generation “Atomic” ioMemory PCIe card products. SanDisk will inherit all of its server OEM and channel partner relationships and be able to guarantee a steady supply of flash chips from its own flash foundry partnership with Toshiba.

The acquisition is expected to close in the third quarter of SanDisk’s fiscal 2014, unless somebody else jumps in with a bid and prolongs the affair.

The flash industry is consolidating at a dizzying rate, with Seagate buying LSI’s PCIe card flash business from Avago for $450m in May. It followed on from multiple acquisitions by Western Digital, and Toshiba buying Violin's Velocity PCIe card business.

The $1.1bn SanDisk is paying is slightly more than double that, so there is a premium for Fusion’s market success over LSI, but, still, twice times its annual revenue? Is that really all Fusion-io could hold out for?

No doubt it explored the ground elsewhere and found insubstantial interest. The announcement release notes Qatalyst Partners acted as financial advisor to SanDisk and we can't but suppose that the Frank Quattrone-ran firm looked energetically for other potential bidders.

Fusion-io CEO Shane Robison was pleased and his canned quote went like this: “This transaction represents a compelling opportunity for Fusion-io’s employees, customers and shareholders. Fusion-io’s innovative hardware and software solutions will be augmented by SanDisk’s worldwide scale and vertical integration, enabling a combined company that can offer an even more compelling value proposition for customers and partners.”

No arguments there.

There are now virtually no standalone flash component startups of any distinction left, and all-flash array startups Kaminario, Nimbus Data, Pure Storage, Skyera, SolidFire and Violin are facing strong array competition from Cisco, EMC, Dell, IBM, HDS, HP, and NetApp. One or more will be chewed up in this competitive meat-grinder and spat out.

SanDisk will be competing at the hybrid array level (ioControl) with Nimble Storage, Tegile and Tintri, and all the mainstream vendors above. That is a tough ask and the ioControl product line may struggle.

How the Fusion-io business will be integrated with SanDisk’s other enterprise flash businesses will be of great interest to Fusion-io execs and also to SanDisk’s execs in that area. In the short term, the Fusion organisation will surely exist alongside the SMART Storage people, but in the longer term there will be a struggle to establish and run a single enterprise flash business inside SanDisk.

Any bets on Shane Robison running that? ®

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