MILPITAS -- SanDisk, which has found huge sales gains by focusing on business needs for its ubiquitous flash memory products, juiced that area of its business by agreeing to purchase enterprise-flash company Fusion-IO for more than $1 billion.
SanDisk announced Monday morning that it has agreed to pay $11.25 per share for the Salt Lake City company, which values Fusion-IO at $1.21 billion; SanDisk will commit $1.1 billion in cash for the deal, after assuming Fusion-IO's cash reserves.
"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," SanDisk CEO Sanjay Mehrotra said in Monday's announcement.
The Milpitas flash-memory company, known for memory cards popular for consumer products such as digital cameras, has used acquisitions to muscle its way into the booming market for flash storage on a grander level. SanDisk purchased two software companies, Schooner Information Technology and FlashSoft, in 2012 and followed that up with the $307 million acquisition of Newark-based solid-state drive manufacturer SMART Storage Systems in 2013.
With flash storage becoming fashionable in data centers and other large corporate storage, SanDisk capitalized on its purchases and increased its annual sales more than $1 billion in 2013, topping $6 billion in revenues for the first time and experiencing a gigantic 150 percent gain in profits.
Fusion-IO should enhance SanDisk's ability to offer businesses complete storage packages -- the company was one of the first to succeed at providing flash solutions for data centers. Founded in 2005, Fusion-IO arrived just as cloud computing and big data created a big need for bigger and faster storage solutions and found big-name clients such as Apple and Facebook, with the Menlo Park company accounting for just less than half of Fusion-IO's business when the enterprise-flash company went public in 2011.
Fusion-IO went public at $19 a share and zoomed up to $25 in its debut on Wall Street, pushing its valuation up to nearly $2 billion as optimism abounded with Apple cofounder Steve Wozniak as the company's chief scientist. However, the company has suffered from instability at the top, firing then-CEO Don Basile before its IPO and losing cofounders David Flynn and Rick White, the CEO and chief marketing officer respectively, in 2013 as Fusion-IO's huge sales growth began to disappear.
Since producing a profit of $4.6 million and increasing sales more than 500 percent in its 2011 fiscal year, Fusion-IO has yet to show off those abilities again. Sales growth in the 2013 fiscal year slowed to 20 percent, and Fusion-IO tallied a loss of more than $38 million; With three quarters gone in its 2014 fiscal year, Fusion-IO is actually on track to post a decline in sales this year, with revenues down 13.8 percent year-over-year through nine months.
The company's decline in performance sent its stock to record lows: The $11.25 price SanDisk agreed to pay, while less than 60 percent of Fusion IO's IPO price, was still more than 21 percent higher than the stock's closing price at the end of last week.
"Fusion-IO was in the midst of a corporate transition toward a larger focus on enterprise solutions," Sterne Agee analyst Alex Kurtz wrote in a note Monday morning, adding that the acquisition "signals the likelihood that the board saw a longer road ahead on this front."
Kurtz added that other Silicon Valley enterprise-flash stocks -- namely Nimble Storage and Violin Memory -- could be positively affected by the news.
Fusion-IO ended Monday's morning trading session slightly higher than the price SanDisk agreed to pay, at $11.40, suggesting some investors are betting that a higher bid could be possible; SanDisk, which has been trading at progressively higher records for months, reached more record prices and finished out the morning session at $101.19, a 2.8 percent gain from Friday's closing price.
Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.