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  • Ocz Technology Sept 5th Conference Call Notes. Analyst Asks CFO About Buyout

    Ocz Technogy Group (OCZ) hosted a conference call on September 5th, 2012. For those of you that missed it or simply do not have time to listen to it in its entirity, below is a recap of the highlights from the call. Shockingly one Analyst asks about the often rumored buyout.

    Prepared Statements by the CEO

    At 2:27 mins into the conference call Ocz states gross margins will be below prior expectations.

    3:05 - SSD market is accelerating

    3:52 - During the month of August our allocation of 25 nanometer MLC NAND used in Vertex and Agility was cut back significantly.

    4:40 - In order to deliver products to consumers, we have used enterprise grade NAND in consumer products, that had a significant negative impact on our gross margins.

    4:50 - Ocz is not the only company affected by the tightening of supply.

    5:30 - Ocz has recently received samples of our internally designed Barefoot 3 controller and performance exceeds our expectations. We expect to be sampling this product to reviewers in the following weeks and planning on general availably in the 3rd Quarter.

    6:00 - Barefoot 3 supports alternative SSD flash technologies, which are a key component to deal with this flash shortage.

    Question and Answer Sessions starts

    8:08 - We do not see any obstacles to our gross margins outside of the NAND flash shortage. (Authors Translation: After this flash obstacle is over margins should recover and rise. Which is logical given Barefoot 3 will increase margins. Once it is out Ocz will not have to buy controller chips from Marvell)

    9:05 - Some 20 nanometer products are starting to pop up

    9:26 - In regards to the shortage, just to be clear it was the last 2 weeks of August shipment (NAND) did not arrive unexpectedly for us.

    11:50 - We hold more inventory of enterprise flash in relation to our sales. so given that there was a shortage and we were unable to meet demand, without giving out any specific numbers, you can pretty much assume we did not have any flash for those products at the end of the quarter. We essentially ran our inventory, the flash, for our big volume products, this is agility and vertex, completely dry. i do not know if that is exactly accurate there are always wafers that are in the pipeline but in terms of finished NAND flash 25 nanometer Async and sync which are what we use for the majority of our products, we were dipping into the enterprise grade flash to fill backlog for Vertex 4. So to give you some idea it was relatively dry. I'm taking out things like future purchase contracts and all that which show in the financial inventory but are not real physical inventory. From an operation prospective we can't count on a contract especially when its not getting fulfilled.

    13:31 - New Bookings in the quarter were well in excess of the prior quarter. Which leaves us with an insurmountable backlog which is both good and bad.

    14:06 - (Authors note: An analyst asked about manufacturing capacity) Ocz stated, "Continued to increase manufacturing capacity and we do have outsourcing available."

    14:36 - Barefoot 3 on schedule.

    15:49 - We have more, more than sufficient demand for our product. We really do not have any demand issues. We have an issue with too much demand but not too little.

    17:02 - We carried over a pretty substantial level of bookings last quarter and those actually shipped (Authors note: He is referring to the 27 million in bookings from last quarter)

    17:27 - (Ryan doubts the flash situation will be resolved overnight due to ) Iphone 5 launch, Ipad mini launch, 30% production cut [of flash] from Toshiba, 15% from Micron (MU), 10% from Samsung.

    (He goes on to say that due to the lack of flash in the market that his customers will not have a choice in canceling backlog due to supply and demand issues in the industry in general)

    19:03 - Working on a NAND flash supply agreement. Most important thing we can do as a company.

    19:50 - Gross margins, if you do not neg out the use of enterprise flash usage in building Vertex 4 then margins would be down. Accounting treatment is the accounting treatment, we will treat it appropriately. We will cull out those numbers. Net of that i think the margins are generally non affected by the issue. The only effect of the shortage would be us using enterprise grade flash for vertex 4 series. Any other effect of a shortage would really be positive to gross margins.

    21:00 - At least on a GAP basis the gross margins will be down sequentially.

    22:23 - A year ago we were half the size we are today even with the shortage (A shortage occurred a year ago)

    (The CEO Ryan talks here for a bit about how they have had to build the business up and build up revenue to even get the attention of the NAND manufactures to "even get in the room with those people"

    This might account for OCZ pushing for increased revenues and market share, at the expense of profits, in order to secure a NAND deal.

    Once they secure a deal it would make shortages like what is occurring today less likely.)

    24:14 - We may be getting between 30-50% of the 25 nanometer flash we require. If we switch to a new node it wont be a problem anymore. (Ryan is talking about getting Barefoot 3 out and switching to a .20 nanometer process)

    Buyout Rumor Question

    Of course we all hope and pray that one Analyst would be brave enough to ask the question about the buyouts (Burning all bridges he has with the company at the same time). Joel from American Capital asked about the buyout rumors from Seagate (STX) and Western Digital (WDC) at 25:56 into the call. The response from the CFO was:

    "I'm..I'm not entirely sure that I can comment or know how to comment on that but"

    The voice inflection right after he says I'm.. is worth listening to.

    28:32 - Enterprise parts not affected by the shortage.

    Raising Capital

    29:52 - Would be a fairly bad idea right now. We really do not need the capital. Our inventory moving lower improves our cash position.

    31:07 - 25-30% price increase in NAND.

    32.12 - We have the ability to modulate our prices higher to recoup costs in using enterprise NAND in consumer products (paraphrased).

    32:30 - We have had some OEM wins, expected to ram in Q3. Not material to the business. PCI business not affected by the shortage. The shortage is limited to consumer products.

    33:55 - NAND Flash will allow us to increase our prices, not just to recoup using enterprise grade NAND but increase our prices overall.

    35:48 - They used a substantial amount of enterprise NAND. Not a problem getting enterprise grade NAND.

    37:30 - Sept Oct, Nov, we will be getting less than 50% of the flash we ordered. This may ease over time. This for us comes down to how quickly can we move to new flash (19/20 nanometer).

    39:30 - The 14 million purchase was 25 nanometer NAND.

    Microsoft win

    41:09 - We have a fairly large win from Microsoft that is starting in Q3.

    Bookings

    43:03 - Bookings are in excess of 140 million.

    44:33 - Not pulling guidance of 650-700 million for the year.

    48:15 - A number of competitors can not get flash. Crucial brand is having problems getting parts. (This was confirmed by Micron in a recent conference.)

    Conclusion

    An interesting call overall. Some good questions from the Analysts and an interesting response from the CFO about the buyout question. You have to listen to the audio. Also the company has booking in excess of 140 million but the future supply of 25 nanometer is very murky. The company has some challenges in store for it and it will be a nasty quarter or two

    Lets hope they can get Barefoot 3 out as soon as possible to make the jump to 19/20 nanometer and end the supply problems.

    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.

    Tags: OCZ, STX, long-ideas
    Sep 07 1:39 PM | Link | Comment!
  • Apple (AAPL) To Cut Flash Demand From Samsung -- Good News For Ocz Technology Group

    Apple is cutting back its demand for NAND Flash from Samsung. This might open up some NAND supply for the Solid State Market. We view this as positive news for Ocz Technology Group (OCZ).

    Disclosure: I am long OCZ.

    Tags: OCZ
    Sep 07 10:40 AM | Link | Comment!
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