Fusion-IO (FIO)

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Fusion-io, SanDisk Filings Point to Frenetic Flash-Memory Phase

By Don Clark

http://blogs.wsj.com/digits/2014/06/25/fusion-io-sandisk-filings-point-to-frenetic-flash-memory-phase/?mod=yahoo_hs

Companies bringing flash memory technology to computer rooms have been consolidating rapidly. To get a real sense of the activity, though, it helps to read documents filed this week in connection with SanDisk’s $1.3 billion deal to buy Fusion-io FIO -2.59%.

One filing shows that Fusion-io talked to 11 potential acquirers between late October and May, as the Salt Lake City company pondered its future among rapid changes in the data storage market.

None of the other players are named, but six are identified by letter. Two of them, Party A and Party F, showed some interest in a deal but backed away in May, according to a Fusion-io filing.

SanDisk SNDK +0.10%, which helped kick off the action with a private indication of interest at the end of October, discontinued talks at the end of December–only to renew them again in May with proposals that led to the ultimate transaction announced in June.

“There were a lot of things that we were assessing,” said Sumit Sadana, SanDisk’s executive vice president and chief strategy officer, who helped lead the negotiations. “Fusion-io was certainly one option in meeting our business goals, but not the only option.”

Fusion-io pioneered one class of device that uses flash memory chips inside servers, known by the designation PCIe after the kind of slot they plug into.

SanDisk makes flash memory chips, in a joint venture with Toshiba, as well as devices that use them called solid-state drives. The Milpitas, Calif., company has made acquisitions in the field in the past.

So have others. Lance Smith, Fusion-io’s president and chief operating officer, rattles off a string of flash-related purchases that have been made by companies that include Seagate and Western Digital–the two biggest disk drive makers–and EMC, the big maker of storage systems.

While many companies seemed to be jostling to find the right partner, Smith said special advantages could flow to companies that make connections with others that actually operate flash chip factories, known as fabs. SK Hynix, which makes flash chips, has purchased some related technology, Smith notes.

While Fusion-io has used various chip makers to build its products, a tight relationship with one supplier could have implications about the price paid for those key components. And chips could be tailored for the benefit of particular kinds of storage systems that use them.

“Having access to the fab and suiting the fab output to the business at hand gives you significant leverage in the marketplace,” Smith said in an interview.

SanDisk’s Sadana said it wasn’t swayed by all the deal-making activity swirling in the market. The company was developing its own PCIe-based products, but buying Fusion-io stood to take the company to market faster.

On the other hand, Sadana said, SanDisk prides itself on not paying too much for its acquisitions. His company’s filing with the Securities and Exchange Commission points to some haggling over price: SanDisk initially offered $10.80 per share, while Fusion-io sought $12.75, according to the filings. The deal was ultimately struck at $11.25 a share.

“We had a certain view of the value of the company,” Sadana said. “We stretched to reach that value.”

Shane Robison, the former Hewlett-Packard chief technology officer who was named Fusion-io’s CEO last year, said he installed a new management team with the intent of building Fusion-io as an independent company. But he was also open to changes in the market that pointed to another direction.

“It was a wild ride,” Robison said. “But we feel really good about where we’ve gotten.”