Brooklyn, N.Y. — The vertically integrated business model that impeded growth for many electronics companies through the decades is making a comeback in the solid-state storage industry.
SanDisk, which makes NAND flash chips that it designs into its own solid-state drives, acquired Fusion-io, a maker of flash-based PCIe hardware and software for the enterprise sector. For SanDisk, the $1.1 billion cash deal expands its solid-state drive line that supports the PCI Express (PCIe) interconnect, strengthening its enterprise storage product portfolio, which includes SAS and SATA drives. Fusion-io, which does not manufacture NAND flash, will get a steady supply of parts.
“You need a broad portfolio of solutions, you need strong go-to-market capabilities as well, which we will be able to have together with Fusion-io, and you definitely need vertical integration,” said Sanjay Mehrotra, SanDisk’s president and chief executive, in an interview with CNBC following the announcement of the deal (June 16). “So we believe that we will have what it takes to really work closely with our customers, to understand their growing needs of IT infrastructure challenges and really bring compelling solutions to them. We believe we will be best positioned in the industry for leadership in the enterprise storage segment.”
SanDisk has made strides in improving the mix of its SSD product portfolio with a heavier emphasis on serving the enterprise and client markets. Combined client and enterprise SSD sales accounted for 28% of its 2014 first-quarter revenue of $1.51 billion versus 20% in the fourth quarter of 2013. During that period, enterprise SSD revenue more than doubled on a year-over-year basis.
SanDisk’s enterprise storage business, which it started in 2011, is on track to reach $1 billion in revenue next year, according to Mehrotra, who added that cloud computing applications are driving the need for faster data processing.
Prior to the purchase, SanDisk had put a lot of effort into serving its datacenter customers with its own PCIe SSD products, but still lagged behind Intel and Samsung, according to Fang Zhang, storage analyst, Electronics & Media, at market research firm IHS, Santa Clara, Calif.
“With the acquisition, it provides a potential first-mover advantage into array-like solutions compared to the other flash manufacturers, like Micron,” Zhang said.
Zhang also pointed out that in addition to acquiring a wealth of IP and more sales channels, SanDisk could garner enough market-share to make it a top-three contender in the enterprise space.
“Now, by combining with Fusion-io, [SanDisk’s] enterprise business has the potential to bypass Western Digital (WDC) and become third place in enterprise SSD in 2014,” Zhang said.
By revenue, Intel and Samsung were the enterprise SSD leaders, accounting for 21% and 20% of the market in 2013. Western Digital was third, with 14%, while SanDisk and Fusion-io were 13% and 12%, respectively, according to IHS estimates.
“For Sandisk, with the acquisition, it provides itself an impressive flash portfolio from SAS to PCI Express to DDR-based interfaces,” he said.
For Fusion-io, Zhang said the sale was inevitable for several reasons, citing major executive transition, stagnant revenue growth, and lack of captive flash supply.
In May 2013, Fusion-io’s chief executive, David Flynn, and chief marketing officer, Rick White, resigned. Shane Robison, the former chief strategy office of Hewlett-Packard, took over as president and chief executive. In late 2013, its chief financial officer, Dennis Wolf, also resigned. He was later replaced by former Cisco executive, Ted Hull. The company has also been in the red for many quarters, reporting a net loss of $30.7 million in its third fiscal quarter of 2014 versus a net loss of $20 million the prior year.
— Ismini Scouras is a freelance writer for EE Times.