Dan Primack

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

Fusion-io: We'll be worth more than $1 billion

May 23, 2011: 2:12 PM ET

Fusion-io plans to join the $1 billion club, according to its proposed IPO offering range.

The Salt Lake City-based company, which makes solid-state hard drives for companies like Facebook, said today that it plans to offer 12.3 million common shares at between $13 and $15 per share. If it prices in the middle, Fusion-io would be valued at just over $1 billion.

Not too shabby for an unprofitable enterprise hardware company. Moreover, it revives the debate over whether the company really wants to go public, or is just greasing the skids for a trade sale.

In the "go IPO" corner is the company's recent financial performance. Fusion-io reported a $31 million net loss on just $36 million in revenue for 2010, but has improved to just a $1 million net loss on $125 million in revenue for the nine months ending March 31, 2011.

In the "please buy us" corner are the risks that underly that same data. Most Fusion-io revenue is based on short-term, concentrated purchases. From its prospectus:

"During fiscal 2010 and the nine months ended March 31, 2011, sales to the 10 largest customers in each period, including the applicable OEMs, accounted for approximately 75% and 91% of revenue, respectively. Facebook, Inc. is currently our largest customer and accounted for 47% of revenue during the nine months ended March 31, 2011. Revenue from sales to Facebook and Apple, through a reseller, accounted for 52% and 20% of revenue, respectively, for the three months ended March 31, 2011; however, we expect that revenue from sales to Facebook will decline significantly for the three months ending June 30, 2011."

Not only does this mean that many of Fusion-io's largest wins are done at a discount (i.e., preferred pricing for large clients), but also makes the company a tricky issuer for the public markets. Analysts aren't usually too fond of companies who admit that "quarterly revenue and operating results may fluctuate from quarter to quarter and are difficult to estimate."

Moreover, Fusion-io will have to answer questions about the longevity of its Facebook relationship, in light of the expected sales decline. The two companies have ties that go beyond product -- the two companies share investors Andreessen Horowitz and Meritech Capital Partners -- but Fusion-io could have IPO troubles were the recent purchases believed to be an aberration rather than a somewhat-recurring revenue stream.

No word yet on when the company actually plans to price its IPO.

Fusion-io plans to trade on the NYSE under ticker symbol FIO, with Goldman Sachs, Morgan Stanley, JPMorgan and Credit Suisse serving as co-lead underwriters.  It has raised over $111 million in VC funding from New Enterprise Associates (38.56% pre-IPO stake), Lightspeed Venture Partners (13.12%), Meritech Capital Partners, Andreessen Horowitz and Triangle Peak Partners.

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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