Server-side flash vendor Fusion-io is moving into the storage array business with its $119 million acquisition of NexGen Storage, which uses Fusion-io PCI Express cards along with hard disk drives in its n5 hybrid systems.
Fusion-io revealed the acquisition Wednesday evening during its quarterly earnings report. It is the third -- and largest -- acquisition Fusion-io has made since becoming a public company in 2011. It paid $95 million for caching software startup IO Turbine in August 2011 and an undisclosed price last month for ID7, which developed and licenses the open source SCSI Target Subsystem (SCST) that enables companies to turn a Linux box into shared storage.
NexGen came out of stealth in 2011, started by iSCSI vendor LeftHand Networks founders John Spiers and Kelly Long. NexGen storage systems use flash, memory and hard drives for storage, and have a performance quality of service feature that allows IT administrators to guarantee performance to each application and isolate workloads on the SAN.
Fusion-io CEO David Flynn said NexGen brings his company into the small to medium enterprise market as a standout from Fusion-io's current enterprise-focused products. But although NexGen sells systems, Flynn said its software is a key piece of the acquisition and fits into Fusion-io's software-defined storage strategy.
"NexGen was a clear acquisition choice for us," Flynn said on Fusion-io's earnings call with analysts. "To be clear, we are not getting into the box business. As always, we focus on adding value in software. NexGen Storage will be taken to market as an open platform, as opposed to a closed system."
Flynn has also pledged to keep ID7 technology open, allowing other vendors to use it to build flash storage systems.
"Customers will decide whether they want to continue their dependence on closed systems or move towards an open platform that gives them choice," Flynn said. "We believe open platforms will win over closed."
Flynn characterized NexGen's software, which allows customers to run multiple workloads with different performance requirements on the same system, as "horizontal application acceleration." That is different than Fusion-io's ION Data Accelerator virtual appliance, which he calls "vertical application acceleration" because it deals with applications large enough for dedicated infrastructure.
Flynn said Fusion-io will make NexGen technology available to its OEM partners who sell its PCI Express (PCIe) cards, but no deals are in place yet. Having a storage product also makes Fusion-io competitive with its partners. Fusion-io listed Hewlett-Packard, Dell and IBM as 10% customers last quarter, meaning those vendors sold a significant amount of Fusion-io products on their servers. Cisco and storage vendor NetApp also have OEM deals to sell Fusion-io cards.
All of those partners, except for Cisco, sell storage systems that compete with NexGen. But the flash market is rife with competition as vendors move to cover as many bases as possible. For example, ION Data Accelerator can be seen as competitive with IBM's FlashSystem (formerly Texas Memory Systems) all-flash arrays, and IBM's pledge to spend $1 billion to develop flash products will likely roll out other products competitive with Fusion-io. Server vendors can also sell other PCIe cards that compete with Fusion-io.
"Chances are, Fusion-io read the tea leaves and saw some of their OEMs doing more with their own NAND flash SSD offerings or with other suppliers," said StorageIO Group analyst Greg Schulz. "So if you can't beat 'em, join 'em.
"Can Fusion-io turn NexGen into an OEM model? Perhaps in some sectors," Schulz noted. "However, it also could help transition it into a more direct model or give their VARs something else to work with. Maybe we are seeing the formation of Fusin-io 2.0. The question is no longer if flash is in your future, it's how much, where, when, with what and whom?"
Fusion-io lost $20 million last quarter as its revenue of $87.7 million declined 7% from last year. The vendor forecasted the loss last quarter, saying its largest customers, Facebook and Apple, would decrease spending. Even with the decline, Facebook was Fusion-io's largest customer last quarter, accounting for 19% of sales.
Fusion-io CFO Dennis Wolf said revenue outside of Facebook and Apple came to $68 million, up 61% from last year.