Seagate Wants To Buy A Solid State Maker: Will It Be Fusion-Io, Ocz Technology Or Stec? [View article]
pipster, the attached link might help you understand more about the difference between enterprise-grade and commodity-grade MLC NAND. The two are not only different, but each differs by provider. An unappreciated fact of the business is that a design which works with one provider's MLC NAND does not necessarily work (to spec) with MLC NAND from a different provider. http://bit.ly/OYCqvM
Further, asynchronous NAND (Agility 4) and synchronous NAND (Vertex 4) both use a 25nm die package size, but have different cost, performance, reliability and endurance characteristics.
The Z-Drive R4 uses enterprise-grade , higher P/E cycle MLC NAND which results in higher endurance and longer life. The company has explicitly stated that enterprise products are not affected by the shortage.
Micron confirmed today at the Citi conference that 25nm MLC NAND shortages are an industry problem, not specific to OCZ. In fact he described it as a "perfect storm" of rising demand in the face of production cuts. He further indicated that MU had cut back their internal SSD business more than they had cut back external customers.
It's nice for you that your short is working, but your knowledge of the business suggests that's more luck than good analysis. There is no support for your allegation that management is lying to investors.
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.
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.
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.
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.
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.
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.
7 Reasons Why This Semiconductor Company Is A Buy [View article]
Comment reflects no knowledge of the company or the industry. They appear to have bottom-ticked $14 mil of NAND Flash in the last week of the quarter. If you doubt that, look at SNDK surging from $32 to $42 in the past 7 days on their positive outlook. Legacy products have been discounted to make room for new designs, yet GM still ticked higher (even as a shortage of voltage regulators reduced new Vertex 4 and Agility sales by $15-20 mile in the past Q!) In my opinion, there is zero chance of a significant inventory write-down. And the enterprise business will be very strong in 3Q and 4Q. I expect raised guidance before the F2Q is reported.
7 Reasons Why This Semiconductor Company Is A Buy [View article]
Street consensus is based on OCZ guidance and omits expected revenues for SAN replacement business (Z-Drive R4, etc.) The Z-Drive R4 was launched last August, has been in numerous trials, has awesome reviews, and is already shipping to MSFT and others. This is 50%-plus gross margin business. So my model uses F2013 revs of $918.5 mil, 30.2% GM, Sales & Marketing is 8.5% of revs, R&D is 9.8% of revs, G$A is 6.5% of revs, and Operating Margin is 5.4%. Tax rate is 12.3%. Those projections yield EPS of 64 cents. I have modest cash burn (less than $10 mil) in F2Q and F3Q, and positive Cash Flow from Operations in F4Q.
These numbers may be a little aggressive, but not much...The enterprise business is going much better than people realize, and it's not in the guidance. The chatter about a possible takeover is probably justified, and these numbers would justify a much higher price than most people are thinking...at least $1.0 bil, and probably closer to $1.5 bil, in my opinion.
Is Seagate Planning Its Future With OCZ Technology? [View article]
Does not change my views. But if STX buys OCZ, MU's SSD aspirations are toast. OCZ is already way ahead of MU in the SAN replacement market. STX bought Densbits for the TLC NAND technology, but it's at least 9 months out. OCZ has TLC NAND technology now. If STX buys OCZ, they would leapfrog everyone and be the gorilla in that nascent market. In addition, STX has a supply agreement with Samsung; MU would likely lose a big chunk of their NAND flash revenue. I think MU strategically cannot afford to let anyone else buy OCZ if they can help it.
Is Seagate Planning Its Future With OCZ Technology? [View article]
Again it sounds like you confuse cyclical recovery with growth, but the two are fundamentally different. Good luck on your short; I think you will need it.
Tech Report has been tracking prices for solid-state drives (SSDs) sold by OCZ, Intel (INTC), and others since their 2011 releases, and estimates the average drive has seen its price decline 46% since launch time, thanks in large part to plummeting NAND flash memory prices. That has fueled growing SSD use within PCs (I, II), and is one of the reasons (among others) why hard drive giants Seagate (STX) and Western Digital (WDC) have seen their valuations reach dirt-cheap levels. [View news story]
Would recommend you check out the Savitz interview with Luczo provided by Micah on STX. I view STX much as I would VZ or T before their recent rise. The stock is incredibly cheap (2.5X F2013 consensus estimates), generates boatloads of cash, yields over 4%, and buys back a ton of stock. The demise of consumer HDDs will happen slowly and is more than adequately discounted in the price. And there will continue to be a significant role for enterprise HDDs within a tiered architecture storage environment for the foreseeable future. But most important, the industry has consolidated down to two players who control over 80% of the market. Without a price-spoiler to crush pricing in a downturn, cash flows should be MUCH more stable in the future...which in turn should justify a higher valuation. So I trade around a core position...sold a good bit over $30 and bought it back a couple weeks ago.
I also expect STX and WDC to be more aggressive in the SSD business longer term. But there have been so many new players in SSDs recently, that has made sense to wait for a shakeout before spending a lot of money on acquisitions. That window may be closing soon, as clear IP leaders have started to emerge. I actually think an STX/OCZ combination would make a lot of sense for STX. But I think OCZ shareholders can make more over time if OCZ stays independent.
Fusion-io: Centralize Your Portfolio On Data Decentralization [View article]
FIO is still a cult stock and overvalued, although not as overvalued as it was. I understand they have great technology. But they still get about 80% of revs from 4 big customers, and gross margin has been under pressure past two quarters. If enterprise adoption is so great, why aren't the revenues already growing as fast as they are at OCZ? Part of the reason is that OCZ offers many enterprise customers a better value proposition.
OCZ has bigger revenues, is growing faster, has a more diversified product suite, and is getting great traction in the enterprise with the new Z-Drive R4. Moreover, OCZ has steadily moved up the value chain with its software and controller acquisitions, so gross margins are rising. OCZ trades at less than 50% of C12 revenues and about 5X C13 eps compared with 6.0X revs for FIO.
In my opinion OCZ represents a much better investment.
Hi, yes I was happy with the guidance...actually still think there's upside. Stock sold off on higher operating expenses, and I am reducing earnings and CF estimates (have not finalized them yet.) But if I was Petersen and saw the orders he sees, then I would do the same thing he's done! OCZ is boosting the direct sales force to provide better enterprise service, and they're boosing R&D to launch new controllers and other new products. So robust profitability has been pushed out a couple of quarters, but they'e extending their lead over most of the industry. So yes I think the stock is deeply undervalued and think it's a "Buy"!
Seagate Wants To Buy A Solid State Maker: Will It Be Fusion-Io, Ocz Technology Or Stec? [View article]
Further, asynchronous NAND (Agility 4) and synchronous NAND (Vertex 4) both use a 25nm die package size, but have different cost, performance, reliability and endurance characteristics.
The Z-Drive R4 uses enterprise-grade , higher P/E cycle MLC NAND which results in higher endurance and longer life. The company has explicitly stated that enterprise products are not affected by the shortage.
Micron confirmed today at the Citi conference that 25nm MLC NAND shortages are an industry problem, not specific to OCZ. In fact he described it as a "perfect storm" of rising demand in the face of production cuts. He further indicated that MU had cut back their internal SSD business more than they had cut back external customers.
It's nice for you that your short is working, but your knowledge of the business suggests that's more luck than good analysis. There is no support for your allegation that management is lying to investors.
OCZ Technology Warns On NAND Shortage: What's Next? [View article]
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.
Seagate Wants To Buy A Solid State Maker: Will It Be Fusion-Io, Ocz Technology Or Stec? [View article]
Seagate Wants To Buy A Solid State Maker: Will It Be Fusion-Io, Ocz Technology Or Stec? [View article]
"...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.
Seagate Wants To Buy A Solid State Maker: Will It Be Fusion-Io, Ocz Technology Or Stec? [View article]
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.
Seagate Technology: Investors Are Missing The Point [View article]
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.
OCZ Technology Gets No Respect [View article]
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.
OCZ Technology Gets No Respect [View article]
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.
7 Reasons Why This Semiconductor Company Is A Buy [View article]
7 Reasons Why This Semiconductor Company Is A Buy [View article]
These numbers may be a little aggressive, but not much...The enterprise business is going much better than people realize, and it's not in the guidance. The chatter about a possible takeover is probably justified, and these numbers would justify a much higher price than most people are thinking...at least $1.0 bil, and probably closer to $1.5 bil, in my opinion.
Is Seagate Planning Its Future With OCZ Technology? [View article]
Is Seagate Planning Its Future With OCZ Technology? [View article]
Tech Report has been tracking prices for solid-state drives (SSDs) sold by OCZ, Intel (INTC), and others since their 2011 releases, and estimates the average drive has seen its price decline 46% since launch time, thanks in large part to plummeting NAND flash memory prices. That has fueled growing SSD use within PCs (I, II), and is one of the reasons (among others) why hard drive giants Seagate (STX) and Western Digital (WDC) have seen their valuations reach dirt-cheap levels. [View news story]
I also expect STX and WDC to be more aggressive in the SSD business longer term. But there have been so many new players in SSDs recently, that has made sense to wait for a shakeout before spending a lot of money on acquisitions. That window may be closing soon, as clear IP leaders have started to emerge. I actually think an STX/OCZ combination would make a lot of sense for STX. But I think OCZ shareholders can make more over time if OCZ stays independent.
Fusion-io: Centralize Your Portfolio On Data Decentralization [View article]
OCZ has bigger revenues, is growing faster, has a more diversified product suite, and is getting great traction in the enterprise with the new Z-Drive R4. Moreover, OCZ has steadily moved up the value chain with its software and controller acquisitions, so gross margins are rising. OCZ trades at less than 50% of C12 revenues and about 5X C13 eps compared with 6.0X revs for FIO.
In my opinion OCZ represents a much better investment.
OCZ Technology Update: Boosting Estimates [View article]