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RBC Cuts Target to $16 on Strategy, Customer, Competitive Concerns

RBC Capital’s Amit Daryanani today reiterates a Sector Perform rating on server acceleration technology vendor Fusion-io (FIO), and cuts his price target to $16 from $19, reflecting both concerns about the transition in May to a new CEO, and also what he thinks will be a more sluggish return of business at top customers Apple (AAPL) and Facebook (FB).

On the management front, Daryanani is not comfortable with uncertainty about whether strategy has changed since co-founder and CEO David Flynn left abruptly in early May, and Shane Robison took over:

We remain concerned about the manner in which the CEO transition was handled. Our conversations with CEO Shane Robison suggest that the decision was driven to improve FIO’s operational focus long-term and not to alter its strategy or financial targets. Also, FIO is confident that the CEO transition will not result in any key customer dislocation. However, we await further details on what changes to strategy and implications for the financial model the new CEO will have.

He also sees “a muted rebound” in Fusion’s business with its two top customers, Apple and Facebook, and expects “a conservative guide that would peg FY14 growth below its prior target of 40–50%” when the company reports fiscal Q4 results on August 7th. He cut his estimates for the year to $535 million in revenue from $590 million, but also raised his EPS estimate to 45 cents from 33 cents.


Finally, Daryanani is concerned about increasing competitive efforts at EMC (EMC), Western Digital (WDC), and Intel (INTC), among others:

Despite multiple OEMs launching PCIe SSD solutions (EMC XtremSF, Virident, Intel -CAS, Micron, LSI WarpDrive, SanDisk), we view Fusion-io’s architecture and time-to-market advantage as a differentiator although we note that larger players are starting to get more aggressive in the segment, which could negatively impact FIO: EMC XtremSF, WDC post STEC acquisition, and SNDK post four enterprise SSD acquisitions.
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