The storage industry was abuzz yesterday with news that SanDisk will buy Fusion-io for $1.1 billion. Lots of folks seem confused by this, but I think that’s because they don’t know who SanDisk really are. After having been exposed to both companies’ management, products, and strategy, I think this is a great fit and excellent news for the storage industry.
SanDisk Is More Than SD Cards
SanDisk is a wonderful brand in the consumer flash media space. Ask the average person which company makes good thumb drives and SD cards, and they are likely to name SanDisk first. This is well-deserved, since SanDisk produces some of the best products in these spaces. But the company is much larger than this!
SanDisk invented the SSD and bought M-Systems, who invented the thumb drive. As Chris Evans points out, they acquired Smart Storage Systems to get into the NVDIMM space, Pliant for modern SSDs, and of course FlashSoft for server-side caching. This company is much, much more than just SD cards!
SanDisk is a long-running and apparently well-run company which has existed too long in the bumpy and tight consumer market (see Justin Warren’s awesome analysis) and is now moving strongly into the higher-margin enterprise storage market. They were already targeting $1 billion and 40% of revenue in annual enterprise storage sales by 2016, and this acquisition makes that a very attainable target. In fact, I wouldn’t be surprised if they blow through this, with enterprise products growing to be half SanDisk’s sales in a year or two!
SanDisk is traditionally a very vertically-integrated company, meaning they make most of what they sell. They should be able easily to transition Fusion-io to this same model, allowing greater profit margins on each sale than Fusion-io is currently capable of attaining. And SanDisk is extremely proficient in the OEM and channel market spaces, where Fusion-io were planning to focus. In fact, this was a major discussion point during the Atomic Series launch event I attended two weeks ago.
But Fusion-io growth was stalled and the company was losing money. They needed to step on the gas, expanding sales. And they needed to figure out how to reap rewards from their software layer, ioTurbine and and ioVDI server caching products, and especially their ioControl hybrid storage array line, acquired with NexGen.
One more thing: This is a screaming bargain for SanDisk. Fusion-io has been valued at over three times the purchase price in the last few years, and the market opportunity convinced me that even that was low. SanDisk picked up the company at such a low price that Wall St. types are already sharpening blades and criticizing Fusion-io management for taking too little. This is good news for SanDisk going forward, though there will be lawsuits short-term.
Product Overlap or Synergy?
Assuming the purchase goes forward, what can we expect?
Using the acquisition of FlashSoft Corporation as a model, SanDisk has done a good job of integrating purchased products, supporting development, and really stepping up marketing and sales. Today, SanDisk’s FlashSoft product is one of the best products in their market space, with maturity and support that are the envy of competitors.
Fusion-io bought IO Turbine around the same time, giving them a very similar product in ioTurbine and ioVDI. This is definitely an overlap, but it’s not a crisis: These product teams can come together and develop a stronger next-generation product that will replace both ioTurbine and FlashSoft. It’s not clear how much revenue each company got from their caching platform, so retiring one product won’t hurt the new SanDisk.
As for PCIe cards, the situation is reversed. Sure, SanDisk was already moving into PCIe SSD, but the company mainly focused on SAS and SATA, as mentioned on their call announcing the purchase. SanDisk also acknowledged the truism that “Fusion-io is the clear market leader in the PCIe market area,” a sentiment I think we can all agree with.
Fusion-io’s PCIe card lineup, including the new Atomic Series, are really remarkably good products. After the Atomic Series event, I was writing about my impression of the company’s potential in the market: They stand to be a major competitor in distributed storage, hybrid arrays, and memory channel storage. All that holds true and more now.
Again, there is overlap in PCIe cards but it doesn’t matter: The stronger product will continue and SanDisk will emerge as the market leader.
SanDisk Competes With Nimble, Tegile, SolidFire, and Pure?
Perhaps the biggest implication on the enterprise storage space is the potential for SanDisk’s ioControl hybrid array software to become a competitor with the “young guns” of enterprise storage, Nimble, Tegile, SolidFire, and Pure Storage.
Essentially, the market is hungry for a credible and reliable challenger to the big gorillas of storage (EMC, HDS, NetApp, and the systems companies). The acquisitions of companies like EqualLogic, Compellent, and 3PAR left a huge hole in the fat center of the market.
Nimble Storage has firmly established themselves in this space, and just announced a flash shelf to further cement their position. Now they offer both scalability and performance in one integrated platform. But the important thing about Nimble is their sales and support execution: Buyers can feel confident buying from them, just like the big guys.
I’ve been eager to see who will “step up” next to Nimble: SolidFire has a great product and reputation, Pure Storage has technology and tons of money, and Tegile is very close in concept to Nimble. Any or all of these companies could be the new middle-market storage leaders.
But now we have SanDisk in this space, too. The Fusion-io ioControl platform, acquired with NexGen, has technology very like Nimble and Tegile. Fusion-io had suggested they would supply it to OEMs but I didn’t see any real movement here. SanDisk is another story entirely: They could turn ioControl into a real competitor in this space.
Stephen’s Stance
This is a great move for SanDisk: They get serious technology that is close enough to their space to make a credible story for success. And they got it for much less cash than it will likely bring in over the next few years. Get ready for “that SD card company” to be a serious force in enterprise and service provider storage!
Disclaimer: Just about every company mentioned in this article (and pretty much every other company) has sponsored Tech Field Day, my seminar series, or other work. I attended the Fusion-io Atomic Series launch and Nimble Storage Adaptive Flash events on their dime, and I buy lots of SanDisk products. I think I work with enough companies to be unbiased, but you can judge it for yourself.