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Stan Piland  

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  • OCZ Technology Warns On NAND Shortage: What's Next? [View article]
    fyi...Micron speaking at the Citi conference just confirmed that supply constraint for 25nm MLC NAND is an industry issue...not just OCZ. All suppliers cut production earlier in the year in the face of weak pricing (as Hard Drives recovered from floods last year.) At the same time demand growth has strengthened considerably. It appears AAPL suddenly gobbled up all available supply about 3-4 weeks ago in anticipation of its upcoming launch. Micron says it cut its own internal drive business more than it cut external sales.

    OCZ's advantage is that they are ahead of everyone in the migration to 19/20 nm NAND, so will likely pick up market share. But what everyone is forgetting is that SAN Replacement revs are not included in F2013 estimates. So analyst estimate reductions are worthless! I still think F2013 has to be revised upward to reflect Z-Drive R4 sales, etc., in spite of Vertex 4 and Agility 4 supply issues.
    Sep 6, 2012. 03:59 PM | Likes Like |Link to Comment
  • Seagate Wants To Buy A Solid State Maker: Will It Be Fusion-Io, Ocz Technology Or Stec? [View article]
    Read my post again: July 31,2014, per the 8-k.
    Aug 29, 2012. 12:07 PM | Likes Like |Link to Comment
  • Seagate Wants To Buy A Solid State Maker: Will It Be Fusion-Io, Ocz Technology Or Stec? [View article]
    This is from the 8-K filed Aug 7:

    "...under the terms of the Separation Agreement, stock options held by Mr. Knapp as of July 31, 2012 will continue to vest until the Termination Date, and Mr. Knapp may exercise any vested and unexpired stock options until July 31, 2014. As of July 31, 2012, Mr. Knapp had a total of 162,611 vested and exercisable stock options. The Separation Agreement contains other customary provisions for agreements of this nature."

    Art is a good CFO, but his retirement is not material to the company's future. OCZ has a gigantic short position. And if you follow the company for a while, you will find no shortage of bears with inane allegations and reasons the company will soon fail. I have followed them for a year and a half, and I think their execution in this fast-growing but competitive business has been spectacular.

    The SSD business has entered what I call the "parabolic growth" phase; it is one of the only segments of technology which is likely to power through an economic slowdown (and possible contraction) in C2013. OCZ will likely be profitable...maybe very profitable...in the second half of F2013. Once they become profitable, it will become very, very difficult for institutional small-cap growth managers not to own the stock...particularly at a .5X EV/Rev multiple on current year sales guidance.

    If OCZ gets traction with the Z-Drive R4 (MSFT and others have already qualified) and the VXL software, then revs should exceed $900 mil this year (vs $630-$700 mil guidance), and perhaps $1.5 bil next. If that happens, the stock will be moonshot. I am exceedingly comfortable owning this stock, and I am not enthusiastic about a buyout at this time and price.
    Aug 29, 2012. 11:33 AM | Likes Like |Link to Comment
  • Seagate Wants To Buy A Solid State Maker: Will It Be Fusion-Io, Ocz Technology Or Stec? [View article]
    I have covered this stock for a year and a half. In that time they have consistently met or beaten sales targets. GM has consistently expanded. They have consistently introduced cutting-edge products. OCZ has the broadest product portfolio, the biggest sales volume, their own proprietary controller technology, their own Flash Translation Layer, and their own Adaptive DSP technology. They have been among the first to market in almost everything they do. And most important, the investments have already been made.

    The only disappointment was postponing profitability to invest in a massive new business...which I think looks pretty good. But the valuation has been compressed by clowns who constantly find reasons why the company will soon fail.

    Well they haven't failed yet, and I expect that by mid-fall, the stock price will begin to reflect their strong operating momentum.
    Aug 27, 2012. 12:56 PM | 1 Like Like |Link to Comment
  • Seagate Wants To Buy A Solid State Maker: Will It Be Fusion-Io, Ocz Technology Or Stec? [View article]
    Nice article. I would add a couple of points. Petersen has repeatedly stated that their entire business model depends on declining prices, because lower prices enable SSDs to compete more effectively with HDDs. To this end, they spent a fair amount of money developing an internal wafer processing capability,which should add around 400 bps to the gross margin.

    The consumer business is becoming more standardized (but not yet commoditized), and OCZ is at the front of the pack...Vertex 4 is an awesome product and a top seller. They are ahead of everyone with TLC NAND-based drives, which should be launching soon.

    The real action is in enterprise SSDs, and again OCZ is near the front of the pack. Their Z-Drive R4 PCIe has had some of the best reviews in the industry and sports a 50%-plus GM. Their VXL cache and virtualization software has been qualified with VMWare and should enable OCZ to compete effectively with FIO in the nascent SAN Replacement market.

    Finally regarding growth, the reason this stock is so cheap is that they ramped Sales & Marketing, R&D and Inventories to support the SAN Replacement business, but they haven't incorporated it into their guidance. So you can't reconcile expenses and cash burn with expected revs. The Z-Drive R4 has been in numerous qualification trials for a year, and all evidence suggests it is doing well. I expect MSFT and others could contibute several hundred million over the next few quarters, but again, those revs are not included in the $630-$700 mil guidance. So I expect F2013 will actually see revs over $900 mil and eps of around $.60 per share. My model suggests the do NOT need additional financing to support these revs.

    Finally, regarding valuation, I have communicated to management that I would vote "No" against any deal below $1.5 bil or $21 per share. Why would I want to sell now, right before they reap the benefits of all that investment? So I agree a deal with STX makes a lot of sense, but I expect a quarter or two of profitability before a deal actually happens. And I expect significantly higher stock price with or without any deal.
    Aug 27, 2012. 12:20 PM | Likes Like |Link to Comment
  • Are Molycorp Shares Worth Buying On The Recent Plunge? [View article]
    Xinhua reported today that China is imposing minimum production levels for rare earth elements producers. The threshold could lead to 20% production cuts. A senior Chinese ministry official said about one-third of rare earth mining operators and nearly half of the smelting and metallurgy businesses in China will be unable to meet the new criteria. This would seem likely to renew concerns about REE availability, and will likely boost pricing. MCP is deeply oversold and could rally at least 40-50% near term. I have little concern about MCP's ability to obtain additional financing. Bot some today and will likely add tomorrow.
    Aug 7, 2012. 06:12 PM | 2 Likes Like |Link to Comment
  • Mitek One Billion Potential Users By 2014 And 33% Of The Float Short [View article]
    Can you explain why you think TISA has a better RDC product? So far, no one has seen it. Also, systems integration to launch mobile deposit takes 6-12 months, at significant cost to the bank...pretty sticky business. Why do you think banks which have already absorbed these costs would choose to incur additional switching costs? Finally, are you suggesting that TISA and Kofax have mobile photo bill payment technology currently? I don't know about Kofax, but TISA has made no such announcement. MITK is the leader in this space; the rest are distant laggards.
    Aug 3, 2012. 11:51 AM | 1 Like Like |Link to Comment
  • Seagate Technology: Investors Are Missing The Point [View article]
    Thanks, nice article. I own both STX and OCZ, and so have some opinions on both. What this article describes is basically a bond substitute. Nice yield and some eps growth through share buybacks. However, I would actually be more enthusiastic about STX if they DO buy OCZ and move aggressively into SSDs.

    In unregulated industries, the progression of technology is always towards lighter, cheaper and faster products. SSD's are a brilliant example, and indeed spectacular unit volume and sales growth suggest increasingly broad adoption. Clear technology leaders have begun to emerge, and several companies are on the verge of profitability. STX and WDC are both behind the curve in SSD technology and market share, and so risk being marginalized as the market develops. And the longer they wait, the more expensive it will be to gain share through acquisitions.
    Aug 3, 2012. 10:17 AM | Likes Like |Link to Comment
  • Mitek One Billion Potential Users By 2014 And 33% Of The Float Short [View article]
    Nice article...I am extremely bullish on MITK technology. I would add one additional observation. On the most recent quarterly call, management disclosed that transaction volumes were up 25% sequentially. I confirmed that sequential transaction volume comparisons are accelerating to the upside, so next quarter should be even higher.

    The company has long collected aggregate transaction data, but has been prohibited from releasing it, because to do so would violate NDAs with their largest customer. But since Wells Fargo and Bank of America have now launched the service (as well as the other134 who have now launched), my expectation is that they will be able to release aggregate transaction data within a few quarters.

    This is very important, since their revenue recognition is lumpy by nature. Transaction data (at roughly 10 cents per transaction) will enable investors to better gauge the powerful growth trajectory of this company.

    An additional catalyst is the pending launch of Mobile Photo bill pay, which should happen this summer. I have little doubt that MITK will be back in the double digits within the next few quarters.
    Aug 2, 2012. 01:08 PM | 1 Like Like |Link to Comment
  • OCZ Technology Gets No Respect [View article]
    My model suggests OCZ can make a good profit as SAN Replacement, new Vertex 4 and Agility 4, and new controllers ramp in the second half . First, Vertex 4 is a consistent top seller, and it's a 30% GM product. More important, the SAN replacement products sport a 50%-plus GM, and have been qualified with MSFT Azure and others. So they're now selling those into 5 of the 10 largest datacenters in the world. Finally, OCZ should recognize the benefit of their supply agreement and wafer processing capability in the back half...worth about 400bps to the GM. Even with lower margins on legacy products (example: Vertex 3), GM should be around 33% in 4Q and 30.2% for the year.

    Sales & Marketing expense jumped 200 bps in 1Q as they built a direct sales force to support the enterprise business. But as sales ramp, S&M as a percent of sales should drift back down from 11.6% to 8.5% of sales in the second half and 8.9% for the year.

    R&D was high in the past 2 quarters to accelerate the launch of Vertex 4 and develop new controllers; it should drop from 16.2% of sales in 1Q to 10.7% in 2Q, and back down to around 8% in 2H, or 9.8% for the year. I'm assuming G&A is around 6.5% of sales for the year.

    So Operating Margin for the year should be around 5.1% and Tax Rate should be 12.5%. (I think the will use most of their NOLs by year end.) And with revs just over $900 mil, these numbers should equate to a breakeven 2Q and eps of $0.60 per share for the fiscal year.

    STEC is so far behind the tech curve and so unprofitable, that it would be a dilutive acquisition for at least a year. Moreover, the degree to which STEC has alienated its biggest customers is truly amazing. An OCZ aquisition would be accretive within a couple of quarters, their products are getting great reviews, and they are winning really big datacenter clients...including MSFT, where STX CEO Luczo is on the board.

    If you think OCZ sales growth won't drive profits, could you provide similar detail? Thanks.
    Aug 1, 2012. 11:14 PM | Likes Like |Link to Comment
  • OCZ Technology Gets No Respect [View article]
    Takeover noise is finally starting to abate, so maybe it's time to focus on robust fundamentals... Seredipity has detailed the concerns better than most, and it's true that profitability taken longer than most folks thought.

    The reason I'm bullish is that I think the enterprise business (particularly the SAN replacement business) is emphatically NOT a commodity. In fact, IP including controllers, the Flash Translation Layer, Adaptive DSP thechnology, and the migration to TLC NAND are key differentiators moving forward. And the massive R&D spend over the past 2 quarters has put OCZ is ahead of everyone in this regard. The nascent SAN replacement business is just starting to grow. And although it will undoubtedly contribute to revs and eps this year, OCZ has opted not to include it in guidance. But let's face it, MSFT does not qualify a 50% gross margin, sole source product from a tiny company if the product is a commodity...the Z-Drive R4 is definitely not a commodity.

    The off-the-shelf retail products are further along towards becoming standardized. OCZ's NAND supply agreement and internal wafer processing capability both combine to provide a competitive advantage, however, and can boost GM by as much as 400 basis points as they become fully implemented.

    I think the massive inventory build reflects three separate dynamics: (1) They bottom-ticked $14 mil in low-price NAND before prices rise in the fall, (2) They want to quickly move up the learning curve on the new wafer processing capability...new head of operations Jason Ruppert should help this effort...and inventory turns should improve dramatically next few quarters, and (3) They want to be able to support several hundred million revs above current guidance, driven by SAN relacement business from MSFT, AMZN and others.

    I think they are managing to $900 mil-plus in revs this year, and eps at that sales level should be around 65 cents. In fact, I think F2Q will probably be above guidance, and that would provide a good opportunity for management to bring guidance in line with spending.

    Finally, I think management has done a disservice to investors by not including SAN Replacement in guidance. Serendipity is right about this: expenses and inventory build make NO sense with current guidance. Guidance is "conservative", but this company is actually being managed quite aggressively. Perhaps if revised guidance better reflects managements actual goals, investors will award OCZ valuation more in line with its robust growth.

    To conclude, STX and WDC's resistance to embracing SSD technology reminds me of EK defending its film business in the face of digital camera grpwth. I suspect they will wake up; hope it's not too late.
    Aug 1, 2012. 12:56 PM | 1 Like Like |Link to Comment
  • OCZ Technology Gets No Respect [View article]
    They say you can have your own opinions, but not your own facts. The fact is that OCZ's top 10 customers in F2012 accounted for 41% of revs. Only Memoryworld Gmbh accounted for 10%. Newegg did NOT account for even 10% of sales, although it was 17% and 19% in F2011 and F2010 respectively.

    Your comments do not reflect new PCIe products such a Z-Drive R4, which has had spectacular reviews and it is rapidly gaining share in the datacenter.

    I think OCZ estimates are way too low for F2013, because they explicitly exclude revenues for new SAN Replacement business and new controllers. Time will tell on that, and people are free to disagree. But it not heplful to litter these comments with blatant misinformation.
    Jul 31, 2012. 10:17 AM | Likes Like |Link to Comment
  • OCZ Technology Gets No Respect [View article]
    Action today is hilarious! Weak holders are puking out a perfectly good company before a huge back-half sales ramp. STX buyout rumor would be great. But if not, the stock will be worth even more in 6-9 months.
    Jul 30, 2012. 03:08 PM | 1 Like Like |Link to Comment
  • OCZ Technology Gets No Respect [View article]
    My understanding is MSFT business is already shipping. Z-Drive R4 anniversaries in August; trials usually run 6-12 months. In February, they said the had 500 SAN replacement trials underway. Reviews have been awesome, and MSFT Azure has already qualified. The reasons for ramping inventory are (1) stock up on cheap NAND flash before prices rise in the fall, (2) get up the learning curve on new wafer processing capability, and (3) they see big sales ramp in the back half. Numbers are way too low, and a $1.0 bil buyout would be a bargain for STX.
    Jul 27, 2012. 12:50 PM | 1 Like Like |Link to Comment
  • OCZ Technology Gets No Respect [View article]
    Nice article. Important point is that guidance and street consensus are both meaningless, because they exclude the both expected SAN replacement revenues (MSFT, AMZN, and others) and sales of soon-to-be launched controllers. My estimates for this year (F2013) are $918 mil revs and 64 cents per share in earnings.

    Moreover, fears of excess cash burn are unfounded in my opinion. With $126 mil in inventory, $43 mil cash , and a $100 mil credit facility, I think working capital will be sufficient to support these sales. I have CFO slightly negative next 2 quarters, positive in 4Q, and very positive in F2014.

    OCZ is the largest independent SSD company by sales volume. It has the broadest product portfolio, its own proprietary controllers, its own Flash Translation Layer, and its own Adaptive DSP technology. Most important, the investments have already been made.

    As part of STX, OCZ could easily generate $1.5-$2.0 bil in sales next year at an 8%-10% net margin. So if STX buys OCZ, for $1.0-$1.5 bil, the deal would be accretive within a couple of quarters. I think shorts have it very wrong on this one...
    Jul 27, 2012. 12:11 PM | 2 Likes Like |Link to Comment
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