Will Fusion-io Earnings Prompt a Bid From EMC or Seagate?

Fusion-io (FIO.DL) will release its quarterly report on Wednesday, and investors have suffered through extreme volatility over the past several months. As important as Fusion-io earnings will be, many now see the company as a possible takeover target by EMC (EMC) or Seagate Technology (STX), so it's important to look at the coming results in that context.

Fusion-io was an early entrant in the flash-memory and solid-state storage industry, which has turned out to be one of the biggest growth areas in technology as the collection and analysis of enterprise data requires ever-increasing computing power and storage capacity. Unfortunately, being in the right place at the right time hasn't really paid off for Fusion-io shareholders, who have seen their shares collapse over the past year. However, Cisco Systems' (CSCO 0.44%) acquisition of Whiptail and Western Digital's (WDC -3.32%) buyout of Virident has boosted the value of Fusion-io's assets, leaving it open to potential poaching. 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.

Stats on Fusion-io

Source: Yahoo! Finance.

What's happened to Fusion-io earnings?
Analysts in recent months have slashed their views on Fusion-io, reversing early calls for a modest profit for the quarter that ended in September and all but eliminating their full-year fiscal 2014 projections. The stock has fallen 3% since mid-July, but that masks huge volatility in the share price over that period.

Lately, Fusion-io's earnings results have been downright ugly. In the quarter that ended in June, Fusion-io sustained a wider loss than expected on a big jump in marketing costs, and its future guidance implied far slower growth than investors had expected to see. With major customer Facebook looking to cut back on the amount of flash memory it purchases, Fusion-io is having to deal with a big shift in its demand picture, and the poor results sent shares plunging earlier in the quarter.

But increasingly, investors have seen Fusion-io's low share price as potentially prompting a buyout bid. With Western Digital having made a purchase in the solid-state arena, Seagate would be a logical choice to answer back with a bid for Fusion-io. But Cisco's bid for Whiptail could lead virtualization competitor EMC into the picture. Takeover speculation all but wiped out Fusion-io's earlier losses for the quarter.

Still, a buyout would be no guarantee of a big profit for Fusion-io shareholders. Competitor Violin Memory's recent IPO didn't go very well, and the concern has to be that flash memory systems could turn into nothing more than a commodity. If that's the case, then would-be acquirers could just wait for Fusion-io's stock to continue dropping steadily before making a cheaper bid.

In the Fusion-io earnings report, look to see how the company is positioning itself strategically. If it anticipates or even invites a buyout, then it could raise the level of interest substantially.

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