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Fusion-io’s Shocker Could Make It a Bargain

The flash storage maker's slashed guidance is killing the shares


Fusion-io (NYSE:FIO), a top provider of flash storage systems, shocked investors Thursday with its fiscal second-quarter results. The stock is currently off by 17% to $16.88 in today’s trading. However, the shares had already been deteriorating — they were priced at nearly $30 in early October.

What happened? Fusion-io said delays in orders from Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) will last about two quarters. These companies represent a whopping 51% of revenues.

Facebook Has Transformed Into a Mobile Ninja
Facebook Has Transformed Into a Mobile Ninja

So, Fusion-io had no choice but to put out weak guidance. For Q3, it forecasts revenues of $80 million and an operating loss of $10 million to $15 million. Keep in mind that the Street consensus was for revenues of $137.7 million and operating profits of $16.7 million.

Horrible, right? Of course. But Fusion-io may be reaching bargain territory.

The company remains a top player in flash storage, which is critical for handling huge amounts of information from mobile and cloud platforms. But the business is inherently lumpy. After all, Fusion-io focuses on multimillion-dollar contracts, which can easily be pushed out to the future. So, investors shouldn’t expect a smooth ride.

And Fusion-io has been moving to lessen its dependence on Apple and Facebook. For example, these companies represented about 70% of revenues when Fusion-io came public in 2011.

However, it’s also true that Fusion-io faces tough competitors. Interestingly enough, Seagate (NASDAQ:STX) recently invested $40 million in a rival, Virident Systems.

But Fusion-io continues to focus on innovation. No doubt, it helps to have Apple co-founder Steve Wozniak as the chief scientist.

An example of Fusion-io’s innovation is its new ioScale product. It focuses on so-called “hyperscale” companies that have tremendous data demands. As seen with new offerings like Facebook’s Graph Search, this type of technology will certainly see growing demand.

If anything, Fusion-io may be taking a fairly conservative approach on its guidance. So, there should be room for an upside surprise, especially as the company continues to get traction in overseas markets, such as in China (the country have some of the world’s biggest Web and mobile properties!).

Thus, for investors looking for an entry point on Fusion-io — and a way to play the data revolution — the timing looks good.

Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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