Why Violin Memory is worth billions in an IPO

Violin Memory is a force to be reckoned within the storage world. The company, which sells high-end storage arrays loaded to the gills with flash memory, just closed a $50 million funding round. This is its fourth similarly sized round in two years  putting the valuation of the company — slated to go public later this year– at about $800 million. If it follows through on those IPO plans, CEO Don Basile told me, the company will be valued in the billions.
It’s not just the industry shift toward solid-state drives replacing slower, less-efficient hard disk drives that’s driving Violin’s value through the roof, though, it’s also the company’s very strategic set of investors.
The latest investor to get on board is software giant SAP (s sap), whose mission-critical ERP and database products are deeply entrenched within large enterprises and could benefit greatly from the price-performance increases Violin’s systems offer over traditional HDD- and-DRAM-based systems. There’s also SAP’s new HANA  in-memory analytic database, which is the focal point of SAP’s big data push. “To the extent that people view HANA as a big data technology,” Basile said, “it fits into our core thrust that we started last year [around big data].”
That “thrust” Basile mentioned is to build the “biggest, fastest, densest” big data systems in the world for technologies such as HANA, Hadoop and NoSQL databases. Violin has worked with various vendors to eliminate the I/O bottleneck in Hadoop that limits throughput into the processor to a few hundred megabytes per second. Using a Violin system, he said, “instead of needing 100 Hadoop servers, you might need 10.”
Violin also counts Juniper Networks (s jnpr) among its strategic investors, although flash-memory manufacturer Toshiba might well be the most important. While other enterprise flash-storage vendors must react to consumer demands that regularly change what flash fabricators produce (generally, smaller, less-reliable NAND memory products), Violin gets to plan ahead. Basile said Violin manufactures four generations out because it knows what Toshiba has coming down the pike. Being the company’s only U.S. investment and one of its only strategic tech investments in years, “if you do business with us, you’re also doing business with Toshiba,” Basile said.
Of course, Violin’s chances of a successful IPO aren’t hurt by the story of a Fusion-io (s fio), a somewhat competitive company that sells solid-state components that plug directly into servers and serve as high-performance caching layers. Fusion-io has been experiencing major revenue increases and, as of late February, was trading at 160 times earnings.
As Basile explained, everyone involved in the flash space is riding the wave of ever-lower flash memory prices and the entry of mega companies such as EMC (s emc), Oracle (e orcl) and HP (s hpq) into the space. “The argument [for flash adoption] becomes not if, only when,” Basile said. “And then, how much?”