Fusion-io Earnings: Can the Data-Storage Company Recover?

Fusion-io (NYSE: FIO  ) will release its quarterly report on Wednesday, and investors are nervous about the expected plunge in revenue that they expect to result in the data-storage specialist's year-ago profit turning into a loss. Yet even in the face of much larger competitors EMC (NYSE: EMC  ) and Western Digital (NASDAQ: WDC  ) , many still hold out hope that Fusion-io earnings will eventually recover and help the share price gain back some of its long-term losses.

The revolution in the memory space has been fast and furious in recent years, as the rise of flash-memory products has forced companies like hard-drive specialist Western Digital to adapt to changing demand for more innovative memory solutions. Yet despite having cutting-edge technology, Fusion-io hasn't been able to leverage its product prowess into a reliable competitive advantage, leaving itself vulnerable to EMC, Western Digital's recently purchased Virident Systems, and other competitors. Let's take an early look at what's been happening with Fusion-io over the past quarter and what we're likely to see in its report.


Source: Fusion-io.

Stats on Fusion-io

Analyst EPS Estimate

($0.10)

Year-Ago EPS

$0.13

Revenue Estimate

$89.31 million

Change From Year-Ago Revenue

(26%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Can Fusion-io earnings recover?
In recent months, analysts have drastically marked down their views on Fusion-io earnings, widening their loss estimates for the December quarter by $0.08 per share and reversing early expectations for modest profits in fiscal 2014 and 2015 to current calls for losses. The stock has gotten crushed, falling almost 35% since mid-October.

Most of the damage to Fusion-io's stock came after its September-quarter earnings report. The company managed to beat expectations with a narrower loss than investors had thought they'd see. But calls for only slight sequential gains in revenue left shareholders disappointed, as they'd hoped to see massive revenue gains of as much as 30% to 35%. Combined with Fusion-io's guidance toward falling margins and the departure of its CFO and chief sales officer, investors weren't reassured that the company will get back on solid footing in the near future.

Still, company executives haven't given up on Fusion-io's prospects. Immediately after the earnings-related plunge, CEO Shane Robison and Chief Legal Officer Shawn Lindquist made major insider stock purchases, demonstrating their commitment to Fusion-io's recovery.

The challenge that Fusion-io faces is finding more customers for its innovative products. Initially, interest from Apple and Facebook seemed to guarantee Fusion-io's long-term success. Yet between weak margins and drops in spending from those major customers, Fusion-io has had to struggle to keep revenue up. Meanwhile, a rash of new players in the space, including Violin Memory and Nimble Storage, only add to the challenge that Fusion-io faces in differentiating itself from rivals. Meanwhile, hopes that EMC might seek to buy out Fusion-io, or that Seagate (NASDAQ: STX  ) might want to answer Western Digital's purchase of Virident with interest in Fusion-io, simply haven't panned out for shareholders.

In the Fusion-io earnings report, watch for the company to give its latest read on customer demand for its products. With tech devices having been big sellers during the holiday season, Fusion-io needs to demonstrate its continuing ability to get its share of sales to reassure investors that it can bounce back from its recent setbacks.

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