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