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Just a Memory Geek, trying to make a buck.
  • OCZ Is A Buy, Don't Ignore This Opportunity. 4 comments
    Nov 21, 2013 3:19 PM | about stocks: OCZ

    Acquisition or Bankruptcy, this is a tale of two cities with the latter being dominated in reporting when we talk about OCZ. In looking at the article header I am certain that some investors will ask me to put down the pipe. Before you jump to the conclusion that I am bored in Colorado or Washington let me present a scenario that becomes increasingly likely when you consider the current environment. As a method of reporting lets cover four of the five traditional questions, who, what, when, and why of a potential acquisition of OCZ is eminent.

    Who? This happens to be the most obvious of the questions to answer when you consider the posture by which Western Digital has entered the SSD market, spending a billion dollars in sTec and stealing Virident out from under Seagate. It doesn't take a rocket scientist to realize that Seagate needs to respond, and needs to do so quickly. When you look at the consolidation of SSD manufacturers that has happened over the last twelve months one has to ask who Seagate could buy at this point and how do they differentiate.

    What do they buy? A brand, products, and a controller. Starting with the least valuable moving to the most let's start with the brand of OCZ. Although the demise of OCZ is epic it is important to note that reviewers like the product and hence consumers like the brand. Known for bringing the first sub one dollar per GB consumer SSD and performance reviews that are glowing consumers respect the OCZ brand. Whether or not this would eventually be eliminated by Seagate in favor of their own brand OCZ still represents a fifty million dollar per quarter consumer presence and a growing foothold in the Enterprise. From a product perspective OCZ's portfolio would compliment and complete the Seagate offering giving them a SAS, PCIE, and SATA SSD's. Most importantly for Seagate to be successful in SSD they need to bring a value to the proposition. It is unlikely they would become a NAND manufacturer, OCZ brings to the table the Barefoot 3 controller IP. Already compatible with 19nm class NAND technology this launches Seagate ahead in the value chain and allows them to offer differentiated products.

    When? With Seagate stinging like they just took a left hook from Tyson as Virident was ripped out from underneath them by WD expect to see this happen before Seagate's next earnings call.

    Why? OCZ is cheap and allows Seagate to launch into the foray products that can compete with Western Digital. Controller IP that they own will allow them to use their experience with OEM's to optimize for those environments. They need an answer to the cannibalizing of the HDD business that is projected to be ongoing; Western Digital knows this and got first mover advantage in the acquisition game. Finally I would be remiss to not note some important financials, sTec was a dying business with a smaller revenue stream, SOLD for roughly three hundred million based predominately on their controller technology. Don't believe that? Go read up on the PR that HGST released regarding the acquisition. Virident went for north of six hundred million and is sighted primarily as a software play with a smaller customer base and product portfolio than OCZ. Market Cap for OCZ is forty four million, a pickup by Seagate at one hundred million would be three times cheaper than sTec.

    Disclaimer: I have no current position in OCZ but plan to initiate a long position in the next 24hrs.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in OCZ over the next 72 hours.

    Themes: SSD's, NAND, Technology, Acquisitions Stocks: OCZ
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Comments (4)
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  • Austin Craig
    , contributor
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    Not a bad article. I can't say i agree 100% with what is said but at least it is laid out in a logic manner.

     

    One thing I would note is that OCZ overall revenues went from 55 million to 33 million. http://bit.ly/1aCnDVg

     

    you should have tried to publish it. :)
    22 Nov 2013, 09:00 AM Reply Like
  • NANDgeek
    , contributor
    Comments (4) | Send Message
     
    Author’s reply » Hi Austin,
    I'm flattered that you read this, I've appreciated your articles in the past. I would've had to take more than 30 min to write the piece if I wanted to try and publish it. Which part do you disagree with? Perhaps I can give further clarity.
    25 Nov 2013, 05:29 AM Reply Like
  • Austin Craig
    , contributor
    Comments (1021) | Send Message
     
    See your email Sir.
    25 Nov 2013, 01:33 PM Reply Like
  • Metcoalfan
    , contributor
    Comments (26) | Send Message
     
    Nandgeek,

     

    I think I'm in your boat wrt the Toshiba 35 mm stalking horse bid not being the final price for the OCZ assets. Docket item #59 which is the KEIP (key employee incentive plan) indicates that mgmt does anticipate overbidding on the 1/13/14 auction date. It indicates a target price of 35 offer plus 15 mm overbid - not that it's a guarantee, but mgmt usually crafts a compensation package that they can achieve for themselves. 50 mm doesn't put equity in the money, but like I said they don't tend to set the bar high. There is as they call it a 'stretch' bar, which would be 35 bid plus 35 mm overbid - which would be the bare minimum to get equity close to some sort of de minimus payout - I think overbid portion really needs to be closer to 50 mm to make it interesting. I'm fairly new to the name, but Seagate does look like a very logical suitor. Based on your experience in the industry, which is far greater than mine - any other potential suitors make sense? At this point, given the current pps, I'm trying to handicap the odds of an outside surprise at auction. You mentioned brand, product and controller. I absolutely agree that controller is the most important of the three - but I would add a fourth metric - which would be engineering talent. You can look at the APA with Toshiba and one of the more glaring pre-conditions to closing (besides higher and better offers) is a % of OCZ engineering staff migrating over (I believe it was 80% but I didn't go back to check that). Obviously, human capital would be more valued by some firms over others depending on how established their SSD divisions already are - any thoughts on that?
    12 Dec 2013, 01:57 PM Reply Like
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