Violin Memory Hints at IPO Plans, Makes A Come-From-Behind Bid to Replace Disks with Flash in Enterprise Storage
It’s not your everyday startup CEO who shows up at Xconomy San Francisco’s office in cowboy boots, claims that he’s going to take over a $23 billion industry, and then hints that an IPO is in the offing. But that’s exactly what Donald Basile, CEO of Mountain View, CA-based Violin Memory, did this Tuesday.
The industry in question is external storage arrays—the big disk-based storage devices sold by companies like EMC, Hewlett-Packard, NetApp, Oracle, Dell, and Hitachi. Enterprises use these devices to store virtually all of their primary data—the databases and data warehouses behind their enterprise resource planning system, their human resources system, their customer relationship management software, and all their other critical functions.
Basile wants companies to replace all of those machines with new storage arrays based on Violin’s Flash memory boards, which can read and write data faster than disk drives and therefore have an easier time keeping up with the superfast, multicore processors in today’s corporate data centers. A longtime champion of Flash memory—he was formerly CEO of Fusion-io, the newly public Utah company that makes solid state memory modules for caching data inside servers—Basile is convinced that Violin can outrun the bigger storage vendors in the inevitable transition from disk-based storage to Flash.
And investors and creditors apparently believe him: they’ve handed over more than $250 million since Basile joined Violin in 2009, counting the money raised by Gear6, a caching startup Violin bought in 2010. Violin now has revenues that could zip past $100 million this year, and Basile says an IPO is likely within the next nine months.
That would be a remarkable turnaround for a company that was deep in debt—with no revenue, and facing a skeptical market—as recently as 2009. Violin didn’t even start selling its first enterprise memory array until mid-2010. But if it does reach the $100 million milestone this year, it will have done so in one-third the time it took a comparable startup—storage array vendor 3Par, which was acquired by HP last year—to hit the same revenue level.
That kind of growth is exactly what the startup’s backers, who include Rationalwave Capital Partners and strategic investors Toshiba and Juniper Networks, are pressing for. “We have, in 24 months, put together a quarter-billion dollars for Violin,” says Basile. “That is a lot of money for a company that had zero revenue when we started. It means people believe there is huge opportunity here. On the other side of the equation, it means you have to get pretty big”—and quick.
Flash memory was invented at Toshiba in the early 1980s, and the Japanese giant still makes about half of the world’s supply of the chips. The technology has already transformed consumer computing: if you hadn’t noticed, there isn’t a disk drive inside your smartphone or tablet device. (The 160-gigabyte iPod classic is probably the last major information appliance with a hard drive.) Instead, today’s mobile gadgets and thumb drives store data in NAND Flash, based on chips with billions of non-volatile “floating gate” transistors, each of which can hold a bit of data for years on end, even without power.
But only in the last few years has Flash memory started to make its way into the enterprise computing market. Manufacturers have long been wary of Flash’s tendency to wear out with use; the more read-write operations a single memory cell is subjected to, the more likely it will fail, or start to give erroneous readings. “In 2007, Dell tried to put consumer Flash drives into laptops, and a number of them burned out,” giving a lot of industry insiders heartburn, Basile recounts. To get past the problems, Flash manufacturers eventually came up with a method called wear leveling, which spreads write access equally across a Flash chip and keeps the average cell going longer. They also introduced virtual mapping systems to allow specific bits of data to be relocated on the chip as cells fail.
By 2009, the technology was working well enough to earn an endorsement from Joe Tucci, the CEO of Hopkinton, MA-based storage giant EMC. “Flash will dominate for the foreseeable future and this will totally change the game in arrays,” Tucci said in an EMC World keynote talk that year. It was a remarkable prediction, coming from the head of the company that basically invented the modern high-capacity disk array and whose bedrock storage product, Symmetrix VMAX, comes with as many as 2,400 hard drives storing up to 2 petabytes of data. But in fact, EMC had already begun to build flash drives into a related product, Symmetrix DMX-4.
Then, late last year, came the “seminal event in our industry,” at least in Basile’s eyes. Oracle CEO Larry Ellison announced in December 2010 that his company would build a “Supercluster” enterprise server customized to run Oracle’s database software, using SPARC processor technology acquired in Oracle’s 2009 purchase of Sun Microsystems. The interesting thing about the Supercluster, from Basile’s point of view, is that it will include terabytes of Flash memory as a kind of queuing area for data traveling between its processors and its disk arrays. Basically, the Flash layer is needed because disk input/output speeds aren’t fast enough to keep the processors busy.
The announcement made Ellison into the “chief spokesman for the memory industry,” Basile says. “There is no more powerful voice in saying how software and hardware should transform the enterprise.”
Oracle is also building Flash into its Exadata storage servers. The big difference between Exadata and Violin’s hardware: you won’t find any spinning disk in the Violin machine. “Exadata has 5 terabytes of Flash and 100 terabytes of disk, but Violin makes the full array in Flash,” says Basile. As a result, he says, “we are able to run Oracle faster and cheaper than Exadata.”
In terms of the cost per gigabyte stored, enterprise-quality Flash memory is no cheaper than disk technology: Violin Memory’s storage arrays cost about the same as a disk-based arrays of equivalent capacity. But speed is the real payoff—Violin’s arrays are “radically cheaper” measured in input-output operations per second, Basile says. “One of our customers is going to replace their VMAX array, a flagship EMC product, with a Violin stack that’s five feet high and outperforms VMAX by 5x to 50x, depending on the application.”
Enterprises spend $20 billion a year to replace or upgrade existing storage systems. As the servers they’re connected to get faster, disk-based arrays will have a harder and harder time keeping up. That could put Violin in position to grab quite a bit of business. “For most companies in the startup world, even finding a billion-dollar market would be wonderful,” says Basile. “We are talking about a multi-billion market available to us, and this is what is exciting for us as operators and for our investors.”
With their legacy disk technology, none of the incumbent storage vendors are likely to make the leap to all-Flash arrays on their own, Basile predicts. But they might decide to buy rather than build—which could put Violin in line to be acquired. “The technology transformation will happen,” Basile says. “Whether it happens under the brand of Violin Memory, or a company like EMC decides to acquire the technology, is an open question. It’s really up to Larry Ellison and Joe Tucci and Sam Palmisano [CEO of IBM] and Leo Apotheker [CEO of HP] whether they will allow companies like Violin to become standalone, large entities.”
That definitely hasn’t been the pattern lately—giants have snapped up storage companies like Netezza (acquired by IBM), Data Domain (EMC) and Equal Logic (Dell) as soon as they’ve hit a couple hundred million in revenue. But there’s another path available to Violin, Basile says. “The opening of the IPO market has made it possible for an independent company to get big,” he says. “We’re watching current market conditions closely, including the success of Fusion-io’s stock market debut and the excitement around Groupon, which, like Violin Memory, has a short revenue track record. All are factors in leaning toward an IPO rather than toward being acquired.”
On the same day he met with me, Basile told Dow Jones VentureWire that he’s already in talks with bankers, law firms, and stock exchanges about going public, and that the offering could move forward as soon as December. An IPO would bring Violin more cash to expand internationally, develop the next generation of even faster and more reliable memory arrays (the company has a close R&D partnership with Toshiba), and build the sales team it will need to compete against the storage incumbents—not to mention the smaller followers now cropping up.
“Our market is very crowded,” Basile acknowledges. “Thirty to 40 startups have popped up in the last two years to chase me and my prior company [Fusion-io] into the market. It’s our job to stay ahead and win.”