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Datacenter solutions provider Fusion-io Inc. recently announced the acquisition of ID7, known for its advanced storage software solutions. Financial terms of the deal were not disclosed.

Founded in 2006, U.K.-based ID7 specializes in making LINUX-based software defined storage subsystems. ID7’s software solutions are based on an open-source platform named SCST. The platform allows creation of sophisticated storage devices from any Linux box and boosts the functionality of servers.

Prior to the takeover, ID7 used to assist Fusion-io in developing software for its ION Data Accelerator software, which will transform industry standard servers into shared storage appliances. Now, with ID7’s capabilities, Fusion-io will be able to offer open source software solutions (SCST) to allow its customers get advanced storage solutions.

With the SCST offerings, Fusion-io will be in a better position to compete with its rivals EMC Corp. (EMC - Analyst Report), IBM Corp. (IBM - Analyst Report) and Hewlett-Packard Co. (HPQ - Analyst Report).

In Aug 2011, Fusion-io acquired IO Turbine Inc. for approximately $95.0 million to extend its storage solutions portfolio. IO Turbine was a provider of caching solutions for virtual environments. With the new capabilities from IO Turbine, Fusion’s traditional storage platform was able to match the growing demands for virtualized servers.

With the new improved offering, ioCache, which leveraged IO Turbine’s technology, Fusion-io succeeded in improving adoption, performance and efficiency of datacenter resources and enabled optimum utilization of information assets for its enterprise customers.

Most enterprises experience a significant growth in data storage requirements, annually, due to deployments of new applications and workload balancing. Input/output-intensive requirements and overall growth of storage are putting pressure on traditional storage architectures. This has led to a secular shift toward the use of flash memory-based storage systems in the datacenter to make better use of big data.

We believe that with new product offerings based on advanced and acquired technologies, Fusion-io will be able to secure its revenue stream.

We are also encouraged by Fusion-io’s second quarter 2013 results. Revenues grew 43.0% year over year and adjusted earnings per share were 3 cents, as against 4 cents loss per share in the year-ago quarter. However, the third quarter guidance was sequentially weak reflecting order delays from blue chip customers such as Apple Inc. and Facebook Inc. (FB). Apple and Facebook constitute roughly 55.0% of total 2012 revenues.

We prefer to stay on the sidelines given increasing competition in the enterprise storage space and customer concentration risks.

Currently, Fusion-io has a Zacks Rank #3 (Hold).

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