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The drama for OCZ Technology Group Inc (NASDAQ:OCZ) just won't end. The manufacturer of solid state drives has gone through a series of dramatic announcements in recent months from missing earnings due to a NAND shortfall, the retirement of the CFO, the resignation of the CEO, and now an earnings warning and reporting delay.

Not to forget that the company hired a new CEO, existing board member Ralph Schmitt. After announcing materially lower revenue expectations, Ralph hosted a conference call that was short on details and long on questions. Due to the lack of firm details, the stock is currently untouchable by investors.

Below are the concerning issues from the announcement and conference call:

  • First and foremost, the CFO was supposedly postponing retirement due to the CEO resignation, but he was nowhere to be heard. His expertise would've obviously been helpful in explaining some of the detailed accounting questions.
  • The explanation on why customer incentive programs were large enough to materially impact revenues while the company faced inventory shortages was not explained to any sufficient resolution.
  • The CEO verified that the credit line had been accessed, but he was unwilling to provide any details. Considering the large loss in Q2, the covenants are likely in breach, suggesting OCZ will need to re-negotiate or derive another funding source.
  • Though the company previously disclosed important deals with Microsoft Corporation (NASDAQ:MSFT), the CEO was unwilling to at least confirm no changes to the previous announcements.
  • Ralph was hired as the CEO from PLX Technology, Inc. (NASDAQ:PLXT) as much for his position on the board as his qualifications due to the impending issues.

Fellow contributor Ashraf Eassa wrote an article full of the reasons to take a bet on the stock from strong technology to a sound plan to focus more on enterprise customers. Unfortunately, though, the liquidity issues and potential for dilution will hold this stock down until the company releases more firm details.

The situation reminds me of the one at Savient Pharmaceuticals Inc (SVNT) back in July. The biotech has an interesting drug with huge potential, yet it was bleeding so much cash that liquidity was a huge concern. The stock plummeted to $0.50. Once the company restructured and re-financed some debt, the stock hasn't looked back and now trades near $2.35. See article here for more info.

Conclusion

The situation at OCZ is dire at the moment. Investors have no idea whether their existing shares will maintain value or be diluted. Nor do investors have any idea where the true revenue base lies.

The new CEO provided little details around the material impact of the incentives. Material can mean $5M or $20M depending on the person. Nor did he address the validity of previous statements surrounding large customers.

Until these main issues are addressed in sufficient details, investors shouldn't touch this stock. Though as in the case of Savient Pharma, interested investors should watch the company from a distance. The new controller technology and enterprise products have huge potential so an astute investor should keep an eye out for a reversal. OCZ just might rise from the dead one day as well.

Source: OCZ Tech: Untouchable For Now

Additional disclosure: Please consult your financial advisor before making any investment decisions.