(Reuters) - SanDisk Corp is buying Fusion-io Inc for about $1.1 billion to add heft to its fast-growing business of providing flash storage drives to companies.
SanDisk, whose flash memory chips are widely used in smartphones and cameras to store data, is increasingly using its chips to build and sell its own solid-state drives, which offer higher profit margins, to companies.
"(SanDisk) was already positioning the company as more of a enterprise storage company ... what the Fusion-io deal does is it enhances that significantly," Cross Research analyst Steven Fox said.
Solid-state drives (SSDs) are faster than traditional hard-disk drives, consume less power and are more shock resistant and durable as they do not have moving parts.
Although SSDs are still more expensive, they are increasingly being built into laptop PCs and tablets such as Apple Inc's iPad.
Flash drives are also being adopted by data centers, a lucrative market where SanDisk competes with Fusion-io, Seagate Technology PLC and Western Digital Corp.
SanDisk's offer of $11.25 per share represents a premium of 21 percent to Fusion-io's Friday close.
Fusion-io's shares were up 23 percent at $11.45 on Monday, suggesting that some investors were expecting a higher offer for the company.
Summit Research Partners analyst Srini Nandury said Sandisk not only got Fusion-io cheap, it got some of the marquee customers other vendors lacked.
Fusion-io's customers include Apple and Facebook Inc, which is building out its next-generation data centers this year.
Nandury said rival bids were unlikely as most big storage companies, including Western Digital and Toshiba, bought flash-based SSD makers last year.
SanDisk's SSD business has been growing at a scorching pace. Revenue from SSDs jumped 61 percent in the first quarter, accounting for 28 percent of revenue. The company expects the share of SSDs to grow to 40 percent of revenue by 2017.
Fusion-io is SanDisk's fifth acquisition in the enterprise storage business, the most recent being its $307 million purchase of SMART Storage Systems last July.
The deal also makes the company less vulnerable to dramatic swings in prices of memory chips that have historically plagued the industry.
Fusion-io, which employs Apple co-founder Steve Wozniak as its chief scientist, has reported a loss for five quarters in a row.
"In terms of technology that Fusion-io has, it's leading edge. It's a question of someone being able to harness that ... and drive it to profitability," Fox said.
SanDisk said it expects the deal, likely to close in the third quarter, to add to its adjusted profit in the second half of 2015. The company's shares were up 2 percent at $100.66 on the Nasdaq on Monday.
Reporting by Sagarika Jaisinghani and Sruthi Ramakrishnan in Bangalore; Editing by Saumyadeb Chakrabarty