UPDATE: Benchmark Company Downgrades Fusion-IO on Negative Outlook

In a report published Thursday, Benchmark Company analyst Gary Mobley downgraded Fusion-IO FIO from Buy to Hold, and lowered the price target from $25.00 to $13.00.

In the report, Benchmark Company noted, “Covering and modeling FIO is tricky task because: 1) the market FIO serves did not exist five years ago, 2) customer concentration has created revenue volatility and 3) the extent to which FIO faces competition is unknown. We now believe FIO is required to significantly lower pricing for ioScale in order to attract hyperscale customers large enough to backfill maturing Apple/Facebook business. This customer/market transition is coming at the cost of gross margin, bringing into question whether the previous model targets of 56%-58% gross margin and 20%-25% operating margin is even achievable. At the same time, new leadership is working to rectify OEM channel conflicts (inconsistent pricing and pre-announcing products ahead of OEM qual's). Rising NAND flash prices at the 2x node will add pressure to margin until the switch to 2y nanometer flash occurs in 2H FY14. Last, it appears as though the company is finally starting to see some competitors creep into the market (e.g. LSI presumably winning some Facebook business). Considering the culmination of these factors, we are stepping to the sidelines and lowering our rating from Buy to Hold and lowering our price target to $13.”

Fusion-IO closed on Wednesday at $14.90.