Fusion-io has cut its fiscal first quarter outlook, is struggling to diversify from Facebook, which accounted for 36 percent of the Flash storage company's revenue, and is retooling its go-to-market strategy on the fly just as competition intensifies.
The company reported its first quarter with new CEO Shane Robison and the results were rocky. Fusion-io reported a fourth quarter net loss of $23.8 million, or 24 cents a share, on revenue of $106.1 million, up 21 percent from a year ago, but below the $110.2 million expected by Wall Street. The non-GAAP fourth quarter loss was 3 cents a share, which was in line with expectations.
For fiscal 2013, Fusion-io reported revenue of $432 million, up 20 percent from a year ago with a net loss of $38.2 million, or 40 cents a share.
But the outlook is why Fusion-io shares are down 24 percent Thursday.
Fusion-io projected first quarter revenue of $80 million to $90 million and fiscal 2014 revenue growth of 20 percent, which was below expectations. Simply put, Fusion-io has lost credibility with Wall Street and analysts are jumping off the bandwagon quickly. Given that Fusion-io's competition is getting much tougher as larger rivals such as EMC push Flash storage it's unclear whether the solid-state data center pioneer can hold its own.
Robison said on a conference call:
This has been a transitional year for Fusion-io, and it has not been without challenges. We've learned that we need to better leverage our strong partnerships and focus on minimizing channel conflict through our new go-to-market strategy. We plan to improve our product development and market introduction process. At the same time, we need to continue to invest in our technology leadership that garnered us our market-leading position to this point.
Among the big unknowns:
- Can Fusion-io diversify. Facebook revenue was 36 percent of sales in the first quarter and Apple was below 10 percent. Those two companies have historically used Fusion-io hardware and software in their data centers, but appear to be tapering purchases. The challenge if Fusion-io can't live on those two companies. The company expects deployments with Pandora, Spotify, LinkedIn, Salesforce and UK National Health in the December quarter.
- Channel conflict. Fusion-io relies on companies like HP, IBM and Dell to move its wares. The problem is Fusion-io's OEM relationships are strained. Robison said Fusion-io has priced products differently for direct vs. OEM sales and its products are competing with the same partners it needs to drive revenue.
- A new strategy. Robison indicated that Fusion-io will sacrifice margin to gain share. Robison said that Fusion-io needs to be more aggressive about pricing. The company will also focus on three areas: Enterprise, hyperscale and SMBs.
Robison said that Fusion-io's business will be lumpy, but was confident about the future. Analysts see two outcomes: Fusion-io turns things around and grows significantly in the enterprise or is ultimately acquired.