by Mike Kapsch, Investment U Research
Thursday, December 22, 2011
Last week, Intel sent waves through Wall Street after announcing it was reducing its fourth-quarter revenue forecast due to massive flooding in Thailand in November.
As PC Magazine reported, “The devastating floods… will likely result in significant hard disk drive shortages by mid-November and the industry might not see a full recovery until late next year.”
For businesses that rely on PC sales for revenue, like Intel, Thailand’s misfortunes will be a burden on sales for the next several months.
Yet one company set to benefit is Fusion-io…
Taking a Closer Look
Founded in 2005, Fusion-io is a flash memory drive, or solid-state drive (SSD), technology manufacturer. It provides data-centralized computing solutions to a number of high-end clients including Apple (Nasdaq: AAPL), Facebook, Hewlett-Packard (NYSE: HPQ), Dell (Nasdaq: DELL) and IBM (NYSE: IBM).
If you own a digital camera, you’re likely familiar with flash memory or SSD technology. They’re the little chips that store videos and photos on your camera. Until now, their main use has been for data storage on portable digital devices.
But Fusion-io has discovered a unique way to utilize flash memory. And it could essentially begin replacing traditional hard drives…
As The New York Times explains, “Fusion-io takes many flash chips and packs them together on a module that is a bit bigger than a deck of cards. The module slides into certain slots inside servers. That gives the main computing chip quick access to data stored on the flash chips. In traditional systems, servers must hunt for data on separate storage systems linked to the processor by a slower connection.”
The result is much faster and more efficient servers. Thanks to Fusion-io’s breakthrough technology (and the fact Apple’s co-founder Steve Wozniak now works for the company), orders have soared higher over the last fiscal quarter.
Sales from August to November surged five-fold to $67.3 million from 2010. The firm also turned profitable in November, with a net income of $7.04 million compared to a $6.71-million loss last year.
The hit to hard drive sales in Thailand should also boost Fusion-io’s numbers over the coming year. In fact, some investors have already taken notice…
Yesterday, the company’s stock jumped as much as 12 percent during intraday trading and finished out the day at $23.39.
Yet, just over a month ago, its shares were up at a record high of $40.34. They’ve fallen 42 percent since…
So what the heck happened?
The answer may surprise you…
The Lock-Up Period is Over
Believe it or not, the main reason Fusion-io’s stock tanked is because insiders were simply taking profits off the table.
The company IPO’d on June 8 of this year. NEA Management Group was the leading venture capitalist firm for Fusion-io with a 31.1-percent stake.
After a company initially goes public, it’s typical for company insiders and majority stakeholders to be restricted to sell any of their shares between 90 to 180 days. This is known as the “lock-up period.” And that’s exactly what happened at Fusion-io…
When the firm’s lock-up period ended, many NEA and company insiders sold their existing positions, which drove shares much lower. Many other investors followed suit too, pushing the stock down even further.
Considering analysts have claimed Fusion-io is years ahead of its competition and has a tremendous advantage, it appears it could be trading at a discount. But investors will certainly want to remain cautious of the fact the firm’s P/E ratio still hovers around 140 – even after dropping over $15 per share.