Shares of OCZ Technology Group (OCZ) rallied a solid 16.30% following an update from CEO Ralph Schmitt with regard to the firm's restructuring plans. The new CEO told the Street what it wanted to hear:
- The company will be laying off 28% of its global workforce
- 150 product variations would be discontinued, reducing the "value" category by approximately 80%
- The company will continue to try to reduce overall cost and improve operating results
Sounds nice and all, but where's that 10-Q?
Keep in mind that the quarter ended on August 31st, a full two months ago. While the rebates and customer incentives may have thrown the company for a loop, it should not take this long to get a 10-Q filed. Period.
No 10-Q, No Investment
Without a 10-Q filed, there is absolutely no basis to actually investing in the company. This is a Pandora's box of potential horrors and carries with it far too much uncertainty to be an investment. Why?
- The fact that it's taking so long indicates that there is something is very seriously wrong, well beyond simply posting a quarterly loss. Investors have absolutely no clue what lurks in shadows of this report. Does the company have any cash left? How's the debt position look? Can the company even remain solvent?
- Where is ex-CEO Ryan Petersen? He cashed in a good portion of his shares earlier this year at the $9/share level, and apparently knowingly put OCZ on a crusade to "gain market share at all costs" without any regards to the investors of the company. Did he knowingly mislead investors?
- On that note, there are a number of lawsuits that have been filed against the company! While I don't suspect these will actually go anywhere, in the off-chance that they do, who will be paying up? Can the company survive a loss of a large class-action lawsuit?
Could Be A Good Trade
While OCZ is NOT anywhere close to investment-grade right now, it is in the hands of traders. The stock responds violently to headlines as the short interest is rather high at ~38.5% of the float. Positive "news" such as the new CEO saying he's doing common sense things to try to keep the business afloat apparently moves the stock up 16%.
I suspect that until the 10-Q is filed, there will be other catalysts to push the stock around (probably to the upside). For example, the CEO will be presenting at the Piper Jaffray Technology, Media, And Telecommunications conference. Such a presentation will likely confirm to traders that the company is still alive and aggressively trying to survive.
But that's all this is - a trade. Without the SEC filings available, stock-holders have zero idea as to the actual fundamental state of the company, and as such cannot base any investment decisions on the fundamentals.
Is The 'New' Business Even Viable?
So, while the company deserves a muted golf-clap for attempting to clean up shop, there are a number of issues that still persist even if the company has a competent management team.
Consumer SSD Space Dominated By Bigger Players
Even if OCZ cuts out the low end drives, it still has very formidable competition at the high end that still produces its own NAND flash, which is by far the largest part of the bill-of-materials of a solid state drive.
This has manifested itself in the channel now:
(click to enlarge)
As the reader can plainly see, OCZ is selling its highest end, cream-of-the-crop Vertex 4 drives for $105 for the 128GB model, $210 for the 256GB model, and $399 for the 512GB model. The theoretical performance specs quoted are quite good and the reviews of the drive also seem favorable. The problem, though, is that there are competitors such as Samsung with much stronger brand recognition that are putting out comparably priced drives that are much cheaper to produce (thanks to being vertically integrated and using the latest TLC NAND technology):
(click to enlarge)
In fact, according to the leading review site Anandtech,
The 840 is very important for two reasons. For starters, it really shows the benefits of being a vertically integrated SSD maker. Samsung could easily coordinate SSD development with TLC NAND production ramps to make the 840 launch a seamless reality. The second aspect of the 840 that makes it so important is that this now gives the market a new solution to driving SSD prices down.
While OCZ has been hyping up its upcoming "Barefoot 3" controller in its upcoming "Vector" line of products (another brand to keep track of) that should be able to use TLC NAND, it is unclear how it will maintain a pricing advantage (while being profitable) over companies like Samsung that produce its own controllers and NAND in house.
The Enterprise - A Pipedream
The big selling point that OCZ's former CEO, Ryan Petersen, tried to push onto investors (including yours truly) is that the company was positioning itself to really take share in the enterprise space. Long story short, nothing ever really materialized here, and with the company teetering on the edge of bankruptcy, it is unlikely that any major datacenter would risk using its products when other, very strong solutions from reputable companies exist today.
Conclusion - Trade OCZ, Don't Own It
Until the SEC filings are in and investors know just how bad the damage to the balance sheet was, this is not an investment. OCZ is a headline-driven, short-seller-dominated stock that serves as a very volatile vehicle for traders.
If you're an investor, stay away until the 10-Q is filed. Nobody - not even management it seems - knows what will be in that report. And until then, this is not an investment.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
