Fusion-IO, Inc. (FIO), Apple Inc. (AAPL): Stock Could Rebound if New Management Executes

Management goals could drive improved profitability

The new management team is focused on doubling revenue. Initially, management plans to expand international revenues, find significant new customers and markets. It will also launch its next-gen ioScale and ioDrive in the second half of 2013 and move SDK to general availability. Management has also targeted a gross margin in the range of 56-58%, in 2012 gross margins ranged from 51%-57.5%. The next-gen products mentioned will help drive margins in this direction in FY13. The company previously almost doubled its sales force and expenses grew faster than revenue. These news sales people and decreasing investments in low margin projects will help turn around bottom line profitability.

Competitors

In the broader data acceleration market, Fusion-IO, Inc. (NYSE:FIO) competes with flash memory companies. EMC Corporation (NYSE:EMC) is the biggest competition Fusion-IO, Inc. (NYSE:FIO) faces. EMC Corporation (NYSE:EMC) has introduced a flash based server, XtremeSF, and this product has millions in marketing and promotion behind it. The XtremeSF cards do lag in terms of performance, but are cheaper to buy and maintain.  Fusion may be able to compete with products but it certainly cannot compete with company size.  EMC made over $2.7 billion in net income in 2012 off of $21 billion in revenue.  Fusion, on the other hand, only had $432 million in revenue and didn’t turn a profit.  Another competitor, STEC, Inc. (NASDAQ:STEC) competes more on Fusion’s scale.  STEC, Inc. (NASDAQ:STEC) sold $139 million worth of product in the last four quarters and didn’t make a profit.  Fusion and STEC both lost market share last year while the giant EMC picked it up.  EMC is definately the heathiest of the companies and also trades at lower price than Fusion when you compare price to sales.  STEC has the lowest P/S ratio but they are also losing the most money.  Revenue for STEC was cut in half in 2012, making it very hard to breakeven.

Conclusion

The company appears it is at least in the very early phase of driving improved profitability. It has a plan, and over the coming quarters, particularly beginning in the second half of 2013, results should start to appear. However, at this early phase, new owners of the stock are essentially buying the new management team’s ability to turn things around.

The article Stock Could Rebound if New Management Executes originally appeared on Fool.com.

Mike Thiessen has no position in any stocks mentioned. The Motley Fool recommends Apple and Facebook. The Motley Fool owns shares of Apple, EMC, and Facebook. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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