In late September, Violin Memory (VMEM) came public. Unfortunately, the deal got off to a shaky start, as VMEM stock fell 22% on its first day of trading.
That wouldn’t be the end of travails for VMEM stock, as shares went on to plunge 70%. In light of this, it should be no surprise that the Violin Memory CEO Donald Basile has been pushed out.
And while VMEM stock is up 16% on the announcement, it is probably still not a good idea to pick up shares.
VMEM Stock Isn’t Worth the Risk
Violin Memory develops Flash memory solutions, which allow for reliable storage for high-speed applications, servers and networks. Such things are critical for fast-growing markets like Big Data, social networking and mobile. But it has not been enough for VMEM stock.
Why? The Flash memory industry is full of fierce competitors like EMC (EMC), Dell, Oracle (ORCL), Fusion-io (FIO), IBM (IBM) and Hewlett-Packard (HPQ). Then there are the myriad earlier stage companies. In fact, one of them — Nimble Storage (NMBL) — came public last week. So in light of all the competition, it should be no surprise that VMEM stock has been under extreme pressure.
But there is more — that is, the customers in the Flash industry tend to be large. This means that they tend to have substantial leverage and also may decide to periodically delay orders. Keep in mind that the loss of HPQ as a customer was another hit for VMEM stock.
In the meantime, Violin Memory will have Howard Bain III as its interim CEO. He is a solid operator, having spent more than 40 years in the tech industry. So it’s a good bet that he can stabilize the operations.
But it will probably not be easy to find a top-notch CEO to take the reins, which means VMEM stock may be dead money for some time. All in all, this is certainly a case study of how IPOs can go horribly wrong.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.