On Friday, Violin Memory’s IPO did not exactly go that well. The company priced its IPO at $9 per share but opened at $7.41, 17.7 percent lower than the offering price. It closed trading at $7.02 per share, down 22 percent.
It was a tough day for the Flash memory maker but it could get tougher as competition intensifies in the market and consolidation continues in the overall enterprise sector.
Cisco, EMC, VMware, IBM, NetApp and HP are all competing for the enterprise market, which is shrinking rapidly as more companies use cloud services in replacement of IT. Flash storage is integral for these legacy providers as it fits with the needs of its largest customers to process large amounts of data with greater speed. It’s not like it used to be when these companies had plenty of room to expand in the market that correlated to their own core technology. In those days, for example, Cisco dominated networking while EMC ruled over the storage space.
For example, the chummy relationship between EMC and Cisco took a turn when last year VMware, owned by EMC, acquired Nicira and its network virtualization technology. Since then, the relationship beween Cisco and EMC has frayed as reflected in Cisco’s recent acquisition of Whiptail for $415 million. The purchase came as part of Cisco’s strategy to deepen its strength in the enterprise. Whiptail’s storage technology passes information through flash servers, promising the ability to process data faster and more efficiently than with traditional hard disks.
Cisco acquired the Flash technology company as part of its broader effort to sell its Unified Computing System (UCS), which converges networking. virtualization and storage. The acquisition puts Cisco in direct competition with EMC and a host of other competitors such as HP, which has aligned with VMware and its march into the networking market which is facing its own disruptions.
But technology advancements always stir the markets and force people to shift their strategies. Companies are moving to Amazon Web Services and other infrastructure providers, finding it more efficient and easier to innovate in the cloud more than on-premise. CIOs that do have IT operations are looking at their storage and networking and thinking how they can make it more efficient and not as costly as it used to be. The problem is magnified by the amount of data that companies process and store.
The shift has created an opening for flash storage providers like Violin but the amount of money it will take for the company to succeed will likely be far more than the $162 million it raised on Friday.
And then there is the fast rise of startups such as Pure Storage which is expanding rapidly with a channel strategy to take on EMC. Earlier this month the company raised $150 million for its Flash storage technology which it says is more affordable than the competition. In total, Pure Storage has received $246 million.
Violin Memory’s revenues increased from $11.4 million in its 2011 fiscal year to $73.8 million this past year. But its losses have piled up too, increasing from $16.7 million to $109.1 million during that same time.
Then there is HP, which in the fiscal 2012 year represented 65 percent of Violin Memory’s total revenue. This past year, sales from HP dropped to about 10 percent of the company’s total revenue.
But in interviews after the close of the bell, CEO Don Basile said the company is embarking on a long-term strategy. That may be true but it’s also the case for Cisco, EMC and the other enterprise giants.