Prospectus Summary
PROSPECTUS SUMMARY You should read the following summary together with the more detailed information concerning our company, the common stock being sold in this offering, and our consolidated financial statements appearing in this prospectus. Because this is only a summary, you should read the rest of this prospectus before you invest in our common stock. Read this entire prospectus carefully, especially the risks described under the section entitled “Risk Factors.”Our Company
We have pioneered a new class of persistent memory-based storage solutions designed to bring storage performance in line with high-speed applications, servers and networks. Our Flash Memory Arrays are specifically designed at each level of the system architecture starting with memory and optimized through the array to leverage the inherent capabilities of flash memory and meet the sustained high-performance requirements of business-critical applications, virtualized environments and Big Data solutions in enterprise data centers. Our Velocity Peripheral Component Interconnect Express, or PCIe, Flash Memory Cards leverage our persistent memory-based architecture in servers and are optimized for applications that require continuous access to large quantities of low latency persistent memory located directly in servers. We have demonstrated that our persistent memory-based storage solutions provide low latency and sustainable performance with enterprise-class reliability, availability and serviceability through product testing and customer feedback. Our solutions enable customers to realize significant capital expenditure and operational cost savings by simplifying their data center environments.
A number of important IT trends are transforming the architecture, design and performance requirements of data centers and highlighting the widening performance gap between storage and other data center technologies. Traditional disk-based storage solutions provided by incumbent primary storage vendors have been unable to adequately scale performance to address this widening gap due to the inherent limitations of hard disk drives, contributing to a performance bottleneck in the data center. We believe there is a pressing need for a new approach to storage, across both array- and server-based architectures, designed to address the input/output, or I/O, intensive requirements of today’s real-time applications and enable organizations to optimize the utilization and performance of their enterprise data centers and hyperscale cloud environments.
Our Flash Memory Arrays integrate enterprise-class hardware and software technologies to cost effectively address the limitations of other storage solutions. Our storage systems are based on a four-layer hardware architecture which is tightly integrated with our Violin Memory Operating System, or vMOS, software stack to optimize the management of flash memory at each level of our system architecture. In March 2013, we expanded our innovation in persistent memory technologies and proprietary techniques in flash management from our memory arrays to our Velocity PCIe Flash Memory Cards. Our Velocity PCIe Flash Memory Cards leverage our expertise in persistent memory-based storage and controller design, as well as our vMOS software stack, to offer a differentiated architecture in a widely deployable PCIe form factor. Additionally, we believe our relationship with Toshiba, a leading provider of flash memory and one of our principal stockholders, allows us to design our systems to unlock the inherent performance capabilities of flash technology and enables us to develop around new generations of flash memory rapidly.
As of July 31, 2013, we believe our persistent memory-based storage solutions have been implemented by more than 250 enterprises in diverse end markets, including financial services, Internet, government, media and entertainment and telecommunications. We primarily sell our products and services through our direct sales force and global network of over 100 resellers to provide a high level of end-customer engagement. We maintain relationships with systems vendors and key technology partners, such as Dell, Fujitsu, IBM, Microsoft, SAP, Symantec, Toshiba and VMware. We have grown our business substantially for the past three years with total revenue of $11.4 million, $53.9 million and $73.8 million in fiscal 2011, 2012 and 2013, respectively and $51.3 million for the six months ended July 31, 2013. We only recently introduced our Velocity PCIe Memory Card solutions in March 2013 and have not derived significant revenue from the sale of these solutions to date. We had a net loss of $16.7 million, $44.8 million and $109.1 million in fiscal 2011, 2012 and 2013, respectively and $59.2 million for the six months ended July 31, 2013.
Industry Background
A number of important IT trends are highlighting the widening performance gap between storage and other data center technologies. These trends include the acceleration of server and network technologies; widespread adoption of virtualization technologies; proliferation of public and private cloud-based environments; explosive data growth and demand for high-frequency, real-time access; the increasing strategic importance of in-memory computing; and a focus on reducing data center complexity and lowering total cost of ownership. Organizations seek to address this performance gap and optimize the utilization of both their enterprise data center and hyperscale cloud environments. Traditional disk-based storage solutions provided by incumbent primary storage vendors, such as Dell, EMC, Hewlett-Packard (3PAR), Hitachi, NetApp and Oracle, have been unable to adequately scale performance to address this widening gap due to the inherent limitations of hard disk drives, contributing to a performance bottleneck in the data center. There has been an increasing shift towards the use of persistent memory-based solutions, across array- and server-based configurations. We believe other flash-based solutions provided by vendors, including EMC, Fusion-io, Intel, Micron, Samsung, SanDisk and sTec, while offering greater performance than disk-based storage solutions, have nevertheless been unable to adequately address this bottleneck due to the limitations of their software and controller technologies that have not been specifically designed to address the technical challenges of flash memory.
IDC estimates worldwide spending on enterprise storage systems will grow from $35.0 billion in 2012 to $42.5 billion in 2017. A majority of this market is comprised of disk-based capacity-optimized and performance-optimized systems, which together is expected to grow at a compound annual growth rate, or CAGR, of 2.2% from $32.8 billion in 2012 to $36.5 billion in 2017. As enterprises seek alternatives to traditional disk-based storage solutions and the price of flash continues to decline, there has been a shift toward I/O intensive storage, which is expected to grow at a CAGR of 23.1% from $2.2 billion in 2012 to $6.1 billion in 2017.1 We believe there is an opportunity for a disruptive solution to capture the I/O intensive storage market as well as a meaningful portion of the market for disk-based capacity-optimized and performance-optimized systems.
In an effort to overcome the limited performance capabilities of disk-based storage solutions, vendors have begun incorporating persistent memory-based solutions as an alternative. Adoption of solid state storage has accelerated as flash memory prices have decreased. According to Gartner, the worldwide average selling price of NAND flash memory per gigabyte has declined from $19.13 in 2006 to $0.73 in 2012.2 Persistent memory-based solutions are generally deployed in two configurations, array-based and server-based. Array-based solutions are found in two configurations, arrays built using off-the-shelf controllers and solid state drives, or SSDs (or a hybrid of both HDDs and SSDs) or specifically designed all-flash memory arrays. Array-based and server-based solutions using off-the-shelf components, which we refer to as other flash-based storage solutions, deliver improved performance relative to disk-based storage solutions. However, their ability to optimize flash memory technology is severely limited principally due to their utilization of off-the-shelf flash memory chips, commodity controllers, commercially available data protection algorithms and management software originally designed for
HDDs. We believe that the implementation of purpose-built intelligent software and controller technologies that are tightly integrated with persistent memory-based solutions are necessary to address the technical challenges of flash memory and to deliver sustained high performance and endurance. Without the implementation of technologies specifically designed for flash memory, the performance sustainability and endurance of other flash-based storage solutions remain significantly limited.
Key Limitations of Disk-based and Other Flash-based Storage Solutions
As a result of these limitations, we believe there is a pressing need for a fundamentally new approach to provide sustained high-performance storage that offers low latency, high bandwidth and extensive capacity as well as enterprise-class reliability, availability and serviceability. In addition, these solutions must enable enterprises to realize capital expenditure and operational cost savings by simplifying their data center environments.
Our Solution
We have pioneered a new class of persistent memory-based storage solutions, in both array and server configurations designed to bring storage performance in-line with high-speed applications, servers and networks. Our Flash Memory Arrays are specifically designed at each level of the system architecture starting with memory and optimized through the array to leverage the inherent capabilities of flash memory and meet the sustained high-performance requirements of business-critical applications, virtualized environments and Big Data solutions in enterprise data centers. In addition, we have brought our innovation in persistent memory technologies and proprietary techniques in flash management from our memory arrays to our Velocity PCIe Flash Memory Cards.
Our Velocity PCIe Flash Memory Cards leverage our expertise in persistent memory-based storage and controller design, as well as our vMOS software stack, to offer a differentiated architecture that delivers sustained high performance, spike-free low latency and enterprise-class availability and reliability in a widely deployable PCIe form factor.
Our persistent memory-based storage solutions address fundamental challenges in the data center and deliver critical benefits to enterprises, including:
Our Strategy
Our objective is to be the leading supplier of persistent memory-based storage solutions for business-critical applications, virtualized environments, Big Data solutions and data center and hyperscale cloud environments. Key elements of our strategy include:
Risks to Our Business
Our business is subject to numerous risks and uncertainties, including those identified in “Risk Factors” immediately following this prospectus summary that primarily represent challenges we face in connection with the successful implementation of our strategy and the growth of our business. We expect large and concentrated purchases by a limited number of customers to continue to represent a substantial majority of our revenue, which means our operating results may fluctuate significantly from quarter to quarter. Toshiba, one of our principal stockholders, is our sole supplier for flash memory. We have agreed to purchase a minimum percentage of our flash memory from Toshiba. Any disruption in our relationship with Toshiba could have a material adverse effect on our business. We have a limited operating history and our revenue growth rate in recent periods is not likely to recur, which make it difficult to predict our future operating results. In addition, the report of our independent registered public accounting firm for the year ended January 13, 2013 contains a statement with respect to substantial doubt as to our ability to continue as a going concern as a result of recurring losses from operations and negative cash flows. Additional factors that may have a negative impact on our business include material weaknesses in our internal control over financial reporting, the availability of, and our ability to control the costs of, the components we use in our hardware products, reductions in customers’ budgets for information technology purchases and changes in the competitive dynamics of our markets, including actions by large storage vendors who have a longer operating history than us, better brand recognition and more resources available.
Corporate Information
We were incorporated in 2005 and recapitalized in 2009 with the arrival of our current chief executive officer, Donald G. Basile. Our principal executive offices are located at 685 Clyde Avenue, Mountain View, California 94043 and our telephone number is: (650) 396-1500. As of July 31, 2013, we had 445 employees, including 186 research and development employees. Our website address is www.violin-memory.com. We do not incorporate the information on, or accessible through, our website into this prospectus, and you should not consider any information on, or accessible through, our website as part of this prospectus.