SanDisk Offers $1.1B to Acquire Fusion-io - Analyst Blog

Flash memory storage provider SanDisk Corp. (SNDK) recently inked a deal to acquire Fusion-io Inc. (FIO), a provider of flash-based PCIe hardware and software solutions for $1.1 billion in cash. The deal is likely to be sealed in the third quarter of 2014 and is expected to boost SanDisk's non-GAAP earnings in the second half of fiscal 2015.

It is worth noting that shares of SanDisk jumped 3.6% post the announcement of the acquisition. On the other hand, shares of Fusion-io soared 22.4% to $11.36 yesterday, higher than SanDisk's offer of $11.25 per share.

SanDisk sells cost effective, power-efficient enterprise solid-state storage technologies and solutions. The integration of Fusion-io's offerings will further strengthen SanDisk's position in the storage market. We believe that the synergies from the acquisition will help SanDisk to emerge as a major player in the fast growing flash memory market, thus lending greater stability to its revenue stream.

Leveraging Fusion-io's hardware and software solutions, SanDisk will be able to enhance its existing flash memory storage portfolio. The current acquisition makes sense for SanDisk as PCIe-based SSDs are in demand from enterprises dealing in online transaction processing and data warehousing.

Fusion-io generated $100.5 million in revenue in the last quarter, up 14.7% year over year. This amount if annualized would fetch SanDisk roughly $400.0 million in revenues. Paying 2.5X of the revenue is not a huge sum to pay, considering the company's double-digit growth rate. This would have little impact on SanDisk, which reported revenues of $1.51 billion in the last-reported quarter itself.

It is worth mentioning that of late the mergers and acquisitions in the flash-based storage market have led to consolidation in the overall storage market. Some of the large storage vendors who have acquired smaller players include Seagate Technology (STX) and Western Digital Corp. (WDC).

Going forward, we remain positive on SanDisk's commentary of a turnaround in the coming quarters and strong secular demand for its storage products. Furthermore, the acquisition of SMART Storage Systems is expected to expand SanDisk's offerings in the Enterprise SSD segment.

However, lackluster PC sales, European issues, competition from Micron Technology and currency fluctuations could hurt fundamentals to some extent.

Currently, SanDisk carries a Zacks Rank #2 (Buy).