OCZ Technology (OCZ) could not be any closer to being delisted from the Nasdaq stock exchange. After falling to $1.11 in late-November 2012, shares nearly doubled in the last month and remained range-bound at $2. OCZ Technology traded recently at $2.39, rising 23.8% on the week of January 21, 2013. OCZ could finally have found a bottom, putting the micro-capitalization status behind.
There are five reasons OCZ Technology shares could have bottomed at around $2.
1) Executive Changes
OCZ filed on January 23 2013 that it entered a separation agreement with its former CSO (Chief Sales Officer). OCZ appointed Wayne Eisenberg as Senior Vice President of Global Sales. Eisenberg has 16 years of experience in growing memory and solid-state storage sales at SMART Module Technologies.
OCZ is a big player in the consumer space, but needs to improve its presence in the enterprise market. In a press release, the executive recognized this. Eisenberg said:
"I'm very excited to be part of this evolving Company and feel that we can propel the global sales operation to new heights, expand our enterprise and OEM footprint, and increase our overall market penetration throughout the world."
2) Lower Risks of Nasdaq Delisting
Due to not filing its quarterly report in a timely manner for the quarter ended August 31, 2012, OCZ Technology risked delisting from the Nasdaq exchange. OCZ received an exception until February 28, 2013 to filing its Form 10-Q.
There is little risk that OCZ will miss the new deadline. The Audit Committee completed its investigation, which covers restatements for fiscal 2012 and for the first quarter of fiscal 2013. Shares are currently heavily discounted to include the risk of delisting, even though this is not likely. When the results are released, additional costs will likely be reported. The timing and the costs of customer incentives could be aversely different from the originally reported revenue and operating expenses.
3) Past Incentive Costs Likely Non-Recurring
OCZ may restate significant and material incentive costs, but as the company focuses on higher-premium products and reduces inventory for older products, this cost should not be viewed as recurring in the quarters ahead. In consumer stores, older products like the Vertex 3 are not as heavily rebated. For example, a 120GB SATA3 solid state drive ("SSD") model is rebated by just $10. OCZ's new Vector 120GB SATA SSD is discounted by only 13% on newegg.
4) OCZ Technology Remains Solvent
Prior to January 15, 2013, OCZ Technology was in violation of its credit agreement, which would increase the risk of insolvency. OCZ amended its agreement with Wells Fargo Capital Finance (WFC) which assures credit will remain available. Solvency is assured until February 15, 2013 or until the agreement is terminated. The revised agreement gives OCZ around $20 million in credit.
5) Short-Squeeze in the Short-Term
31.4% of OCZ shares were held short as at December 31, 2012. When OCZ reports, the company could provide evidence that it is more effectively executing on sales to offset competitive pressures. Competitors like SanDisk (SNDK) and Micron (MU) have advantages over OCZ, as they are able to buy supplies of NAND flash memory at cost.
When OCZ finally reports earnings, its share could begin to move up again. Investors will need to look for evidence that inventory is dropping, sales for the newer products are strong, and older products will not be sold at significant discounts. The company must also explain what approach it will take to improve sales in the enterprise space.
The earnings report also removes uncertainty of insolvency and delisting, which will be positive for its shares. As a bonus, recent buyout activities with Dell (DELL) could benefit OCZ: it could re-ignite rumors that OCZ will be bought about by Seagate (STX) or by Silver Lake. In the summer of 2012 when OCZ was rumor of a takeover, the price tag was thought to be $450 million to 525 million. OCZ recently closed with a market capitalization of around $162 million.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OCZ over the next 72 hours.