SanDisk just announced its intention to purchase Fusion-io for $1.1 billion. The merger currently puts a slightly over 20% premium to Fusion-io’s previous closing price. Speculation over the past few months has been rampant that Fusion-io would be purchased. SanDisk along with many of the traditional hard drive makers have been rumored as potential buyers. Western Digital over the past year has been making a series of SSD related acquisitions. Recently Seagate announced the acquisition of Avago’s SandForce assets.
SanDisk is moving toward a more competitive position in the drive manufacturer space. Currently the SSD marketplace is very fragmented, much like the hard drive industry was years ago.
Understanding a bit of the market dynamics
For anyone familiar with hard drive manufacturing, it is a business characterized by extremely high precision manufacturing at scale. Hard drive manufacturers have large R&D departments augmented by external development. The manufacturing side needs to build ever more complex drives at the same or better capacity, performance, cost and reliability. This manufacturing tends to benefit from economies of scale.
Solid state drives and PCIe drives are fundamentally different. NAND is largely considered a commodity item. PCB design is fairly simple and one can either design their own controllers using a fabless model or purchase controllers off the shelf. Once I had someone joke with me that “we could get four guys together and a dog and make SSDs.” That was an oversimplification but the point is valid. One does not need a massive specialized manufacturing infrastructure for solid state drive manufacturing.
As a result, the old hard drive players are trying to find a way to be relevant as enterprise rotating media moves to solid state. Likewise, the companies who have manufacturing advantages (e.g. companies with fabs) are building or buying controller technology. SanDisk has a joint venture with Toshiba so it does have access to raw NAND. The Fusion-io acquisition gives it a competitive advantage in selling to large buyers of flash. Companies like Facebook are major purchasers of Fusion-io products so it is a good road to market for SanDisk to get into high-performance applications with a vertically integrated stack.