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Stan Piland  

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  • 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 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
  • Why Seagate Will Sizzle Into Earnings Next Week [View article]
    Nice article on STX Bret. You might be aware that the rumor mill is speculating STX may acquire SSD maker OCZ Technology. I think there is a strong possibility the rumor is true. OCZ has had a tough run lately. Although sales growth has been great, they burned $55 mil of cash last quarter on higher R&D, Sales & marketing and big inventory build.

    I think such a deal would be a major positive for STX however. Although controversial, OCZ has emerged as the largest independent SSD company by revenues. It has the broadest product portfolio, its own proprietary controllers, its own Flash Translation Layer, and its own Adaptive DSP technology. STX bought Densbits for its TLC NAND technology, but they are 9-12 months off. OCZ's TLC NAND technology is ready now, and an OCZ acquisition would make STX the leader in that nascent business....they would leapfrog everyone.

    Consensus esimates and F2013 guidance for OCZ do not include any revenues for newly won enterprise business (MSFT, AMZN and more), so estimates are way too low. I estimate OCZ will generate $918 mile in revs this year and earn 64 censts per share. Moreover, as part of STX, OCZ could do $1.5-$2.0 bil in revs next year. A deal at $1.0-$1.5 bil would be accretive for STX within a couple of quarters.

    So I agree STX is a buy. It may dip on any announced OCZ acquisition, but should rally even more strongly after the market digests the potential. I like OCZ here too.
    Jul 27, 2012. 10:49 AM | 1 Like Like |Link to Comment
  • 7 Reasons Why This Semiconductor Company Is A Buy [View article]
    My comment regarding SNDK was to illustrate flash prices have bottomed and are now rising...addresses your comments about declining flash prices. The voltage regulator shortage impacted Vertex 4 and Agility 4sales in the mrq. Management was quite specific about it on their conference call, and it was the reason they released bookings of $140 mil in addition to sales of $113 mil. I have no clue why you would claim the majority of OCZ's drives are PCIe cards; Only the VeloDrive, RevoDrive and Z-Drive R4 are PCIe products, ther rest are SATA. They have not yet announced many sales for the Z-Drive R4 (launched last August), but reviewers have compared it favorably with the ioDrive Duo, and it has already been qualified by MSFT. OCZ has far greater sales volumes and faster growth than FIO, so don't understand why you think FIO is the leader. Good luck with your short, but the info you are providing is bogus.
    Jul 26, 2012. 12:26 PM | 1 Like Like |Link to Comment
  • 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.
    Jul 26, 2012. 11:03 AM | Likes Like |Link to Comment
  • 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 least $1.0 bil, and probably closer to $1.5 bil, in my opinion.
    Jul 26, 2012. 10:42 AM | Likes Like |Link to Comment
  • 7 Reasons Why This Semiconductor Company Is A Buy [View article]
    Yes Chris, that is their logic. The problem is that R&D, Sales & Marketing, and especially inventory build is completely out of whack with $630-$700 mil guidance. They burned $55 mil in cash last quarter, and it freaked out many holders who puked out the stock. If they had just told the street they were targeting $900 mil for the year, expenses and inventory build would be aggressive, but not insane. Conservative guidance is only helpful if it is consistent with conservative management.

    To be clear, I think OCZ's aggressive posture was the right thing to do, and it's good business. But it should be reflected in their guidance. If other companies are analyzing OCZ as an acquisition (and EVERYONE in this business is analyzing acquisitions), you can bet they are modeling revenues and profits well above consensus estimates. I just think they should get investors on the same page.
    Jul 24, 2012. 10:28 PM | 1 Like Like |Link to Comment
  • 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.
    Jul 24, 2012. 04:11 PM | Likes Like |Link to Comment
  • 7 Reasons Why This Semiconductor Company Is A Buy [View article]
    Nice summary. But it's important to note that $630-$700 mil guidance includes no revs from the SAN Replacement business (Z-Drive R4 etc.) or from two controllers to be launched later this year. More realistic forecast for this year (F2013) should be over $900 mil revs and 60-65 cents in eps. I agree the stock is a buy.
    Jul 24, 2012. 03:11 PM | 1 Like Like |Link to Comment