OCZ Technology (NASDAQ:OCZ) has recently experienced quite the rise. Is it all speculative or does a concrete reason exist for the rise in share price? Let us see what we can dig up.
The sudden rise with 5x the normal volume suggests either A) massive news; B) news that leaked and has not hit the public yet; or, C) simple speculation and hope combined with a limited amount of short sellers covering. From what we have seen, the most likely is C.
(Quite a rise in 2 days-- look at the volume).
Massive News (or Lack thereof)
No public news is out to explain the massive rise. This report came out on the 14th of January - long before the pop. Gartner's report states:
"Worldwide PC shipments totaled 90.3 million units in the fourth quarter of 2012, a 4.9 percent decline from the fourth quarter of 2011, according to preliminary results by Gartner, Inc. Analysts said the PC industry's problems point to something beyond a weak economy.
"Tablets have dramatically changed the device landscape for PCs, not so much by 'cannibalizing' PC sales, but by causing PC users to shift consumption to tablets rather than replacing older PCs," said Mikako Kitagawa, principal analyst at Gartner. "Whereas as once we imagined a world in which individual users would have both a PC and a tablet as personal devices, we increasingly suspect that most individuals will shift consumption activity to a personal tablet, and perform creative and administrative tasks on a shared PC. There will be some individuals who retain both, but we believe they will be exception and not the norm. Therefore, we hypothesize that buyers will not replace secondary PCs in the household, instead allowing them to age out and shifting consumption to a tablet."
"This transformation was triggered by the availability of compelling low-cost tablets in 2012, and will continue until the installed base of PCs declines to accommodate tablets as the primary consumption device," Ms. Kitagawa said. "On the positive side for vendors, the disenfranchised PCs are those with lighter configurations, which mean that we should see an increase in PC average selling prices (NASDAQ:ASPS) as users replace machines used for richer applications, rather than for consumption."
Boiled down and shaken out, what this is saying is that the PC industry experienced a decline of -4.9% and that users will get a tablet instead of a 2nd PC. However, it also says that the remaining PC will be content-creation focused - which makes sense. Users will upgrade the remaining PC to make it a performance box and what better way than to slap an SSD into it.
Once you have experienced the raw speed of a solid state drive, it's hard to go back to a traditional hard drive. Sure, they will still be around - but the use will be for mass storage and not the primary drive that contains the operating system. Yet this news cannot account for the massive rise in the stock price.
We also checked out the PACER legal system for news on OCZ shareholder lawsuits. The vast majority of them have been condensed into one lawsuit and it is going forward but no earth-shattering news is out via PACER to explain the rise.
Unreleased News and Rumors
Browsing the major investor discussion boards, it is clear that no one has a clue as to why the stock leaped up. Which leaves us with a few popular rumors wafting around in the air such as:
1. OCZ made an OEM deal with Dell. (There were rumors months ago that OCZ had secured an enterprise win with Dell but lacked the money to acquire the parts).
2. OCZ will release earnings on Monday and they will be wonderful.
3. OCZ will be bought by STX when they release their own earnings on Monday.
4. OCZ is completing that MSFT deal that was talked about during the summer.
5. OCZ is going to get bought out by a mystery company.
These are simply rumors mixed with idle speculation - so take them with a grain of salt.
The 800-Pound Gorilla Reduces Its Product Costs
It seems that Fusion-io (NYSE:FIO) has not just been sitting around idly either. They have released a new PCI-E based card called ioScale which are aimed at the hyperscale market (think Facebook and Amazon.com).
Anandtech.com reports on the target market and pricing:
"The term hyperscale may not be familiar to all, but in essence it means a computing infrastructure that is highly scalable. A good example of a hyperscale company would be Facebook or Amazon, both of which must constantly expand their infrastructure due to increasing amounts of data. Not all hyperscale companies are as big as Facebook or Amazon, though, there are lots of smaller companies that may need as much scalability as Facebook and Amazon do."
The ioScale has previously been available to clients buying in big volumes (think tens of thousands of units), but starting today it will be available in minimum order quantities of 100 units. Pricing starts at $3.89 per GB, which puts the 450GB model at $1556. For Open Compute Platforms, Fusion-io is offering a 30% immediate discount, which puts the ioScale at just $2.72/GB. For comparison, a 400GB Intel SSD 910 currently retails at $2134, so the ioScale is rather competitive in price, which is one of Fusion-io's main goals. Volume discounts obviously play a major role, so the quoted prices are just a starting point.
This just leads to the already-crowded enterprise market becoming just that much harder to fight in. Fusion-io is the leader. They are introducing new cheaper products which will obviously impact other companies seeking to take a bite out of this market by making it just that much harder to compete.
The recent OCZ rise is due to hopeful speculation over the restatement of earnings. Combine this with some potential short sellers covering due to the rise and you may well have found your answer as to why the stock popped. Hopefully, OCZ will release earnings soon. If they are good the stock should have a good rise; yet we will bet that earnings will be rather poor. This should not be confused with the company's future prospects. They do have Vector which seems to be doing well and a few, new, enterprise products in the pipeline. Dilution is on the way though. Remember the company has already stated in the past that they will require more capital to survive. This points to a secondary offering most very likely. If we were going to try to play, we might look at the March 13 calls at a 2.50 strike. It is risky and you're paying a premium for sure, but it is far less risky than buying the stock outright. Bulls and Bears can thrive in conditions like this but pigs get slaughtered.
Disclosure: I am long OCZ. 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.
Additional disclosure: I own some OCZ Leaps.