OCZ: 'Barefoot 3' Causing Stock To Pop, But Is It Time To Buy Yet?

Nov.27.12 | About: OCZ Technology (OCZ)

Well, that was interesting. Shares of OCZ Technology Group (NASDAQ:OCZ) surged as much as 20% during the Nov. 27 trading session. The rise was sudden, unexpected, and occurred intraday. What happened?

OCZ's Vector Is a Hit -- Serious Implications

The best explanation I can come up for the sudden and dramatic increase in share price is that OCZ's latest "Vector" solid state drive, based on OCZ's own "Barefoot 3" controller platform (custom OCZ silicon and firmware), finally hit the street. And it's actually good.

According to Tom's Hardware, a leading hardware review site, the latest drives from OCZ are technologically very strong. The drive is essentially neck-and-neck with Samsung's very own, latest and greatest SSDs in terms of performance. Against other drives sporting controllers from LSI (NASDAQ:LSI) and Marvell (NASDAQ:MRVL), OCZ's platform turns in extremely impressive numbers. A look at HotHardware's review reveals an even more positive view, with the site noting that "the new OCZ Vector is one of the fastest, most consistent performing solid state drives we have ever tested."

In short, OCZ has now successfully built the technology to sufficiently differentiate itself from the hordes of SSD "assemblers" who simply buy controllers, slap them together with NAND flash that they bought from a third party, and then try to compete with other manufacturers who do the exact thing.

What Does This Mean?

Now OCZ has its own SSD controller platform that it not only can deploy in its own drives, but that it can also sell this controller platform to other SSD makers. Should OCZ choose to aggressively pursue this business opportunity, it could make a serious dent in Marvell's and LSI's SSD controller businesses. In fact, Marvell will now lose the business it once had to OCZ due to this.

This also means that in OCZ's own drives, the firm sees a significant gross margin savings as it no longer needs to pay for third-party controllers. It is unclear how much additional R&D/OpEx is required to fund the controller development and if it will offset the gross margin savings.

Conclusion

It's good to see OCZ continue to march on despite its financial woes. I still don't recommend buying into this pop until the 10-Q is filed, but there is now one more glimmer of hope for this company.

Disclosure: I am long MRVL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.