OCZ Technology – It is Do or Die

OCZ Technology – It is Do or Die

Research  these Stocks on Kapitall’s Playground Now

 
research now

OCZ Technology Group (OCZ) has taken a leaf out of the latest James Bond movie and performed its own display of Skyfall. Stock prices have nosedived 55% since last Wednesday as management announced that “revenue guidance cannot be relied upon” and quarterly reporting of its 10-Q filing will be delayed indefinitely. Markets punished the stock further after the company announced that there will be “material changes” to its accounting of customer incentives (most probably discounts) making its quarterly “loss much larger than was expected.”

Briefly, OCZ designs, manufactures, and distributes mainly solid state drives to PC manufacturers, retailers and end user consumers. They are focused on two specific markets: 1) customers who want to replace old hard disk drives with solid state drives, and 2) technology solution providers who require solid state drives for their data centers (e.g. Amazon).

Since the announcement on October 10, critics have been out in full force. Suddenly, OCZ is now on a path to destruction worthy of being on a writer’s “Bankruptcy Watch.” Is OCZ really doomed to failure? With its US$99.4 million market cap well below its book value of US$250.1 million, those who can answer this question correctly are bound to be able to profit tremendously by buying or shorting the stock.

Some commentators have suggested that OCZ could potentially become a takeover target. However, that possibility might not become a reality. Think about how other technology companies might benefit from acquiring OCZ. First, OCZ has no brand value that can be unlocked. Yes, it is widely recognized for selling the cheapest product to the community. But why would a potential acquirer want to associate with that kind of brand?

Customers who are looking for the cheapest products will not remain loyal to OCZ if they raise prices. Technology products such as solid-state hard drives do not tend to be differentiated for major customers such as German-based retailer MemoryWorld. Competitors – who are the potential acquirers, would rather see OCZ fail because that means they will not have to be undercut by OCZ’s prices anymore.

There is no point saving this sinking ship. Thus, it is do or die for the new management at OCZ. If the new CEO can right this ship, this stock is in for a surprise. Given how quickly the CEO recognized the problem and took remedial steps, OCZ’s chances look pretty good.

 

Written by SiHien Goh

playthemarket640jpg

10 Responses to “OCZ Technology – It is Do or Die”

  1. mike says:

    Mr. SiHien,
    Just what did CEO recognize and what remedial steps were taken?
    There has been NO information to the public since 10-Q is late. Nothing givin to the public as of some "remedial steps"…WHat are you speaking of?
    Thanks

    • Sihien Goh says:

      Mike,

      For many management, when they discover massive problems (in this case, the apparent misrepresentation of revenue recognition on their account statement), they tend to hide the problem and let it fester. This new CEO was appointed two days before quarterly statements were due to be released, realised the problem and put an end to it by immediately filing for an extension to correct the statements rather than to conveniently publish a flawed one.

      Immediately placing out a statement saying without reservation that the company's previous "revenue guidance cannot be relied upon" takes guts.

      As for specific remedial steps, it includes 1) being honest with shareholders about the depth of the problem, and 2) correcting its financial statements to reflect the "customer incentives programs" that will immediately decrease its net revenue number for the quarter

      Of course, as you correctly pointed out, the 10Q has not been published. When it is published, the steps that have been taken since the new CEO was appointed 5 days ago (Oct 10) will be reflected.

  2. @undefined says:

    Visit any store that sells OCZ SSD and the first thing you'll see, when there's a "sale" is OCZ Vertex 3 at a discount. Next to it is a new product selling for a sale price too. When the new product is not on sale, the rebated models will hurt new product sales. OCZ is losing to itself. Intel and Sandisk don't even have to try.

  3. John K says:

    Excellent article Sihien. I hope that they are honest and turn it around. The previous CEO had alot of shady history and hoping Ralph will step up to the plate. I actually use their products and been extremely satisfied with their products for the price.

  4. John says:

    Great article this really gets me thinking if ocz mmight be a great choice for the long haul.

  5. The Weasel says:

    Great article. Do you have a 1-year price target for OCZ?

    • Sihien Goh says:

      It would really have to depend on 1) the new statements that are coming out (SEC extension expires today), and 2) how they are going to position their products. If they continue to position their products as a discount product, the company is not worth more than their liquidation value. If the new CEO can come up with a concrete plan to revitalize the brand, then we can value it as a going-concern.

  6. no brand says:

    I think your comments are better than your article. Good Effort though.

  7. Absolutely this is a 'breakthrough'for a Sikh male.And I totally agree with you Reema Ji.We can just keep a note of it.

  8. As a tag along to Chirs Wejr's response, we are in an odd place with regards to the use of social media and our broader understanding of what it means to be 'engaged' in public education. The dominant culture for schools and school systems is still very much one where the information flows one way (from school/system to community) with few chances for information and ideas to flow the other direction. This is the challenge we face- failing to meet could result in us losing the system we hold so dear.

Leave a Reply

Protected by WP Anti Spam

playthemarket280jpg