OCZ Technology's Future Looks Bleak

| About: OCZ Technology (OCZ)
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Lately, OCZ Technology (NASDAQ:OCZ) stock has gone on a big rise on the hopes that its SSD (Solid State Drive) business will make a comeback. The reasons for the stock jump seems to be at least partially the result of several positive articles, like one from legalnews, and a couple of Seeking Alpha articles here and here. There has been no otherwise positive OCZ news that has caused the runup. However, evidence seems to point to OCZ's problems as being far from resolved. Here is what has happened this past month:

1. Wells Fargo Is Cutting OCZ's Credit Line

On 1/22/13, OCZ filed that Wells Fargo is cutting off OCZ's credit line on February 15th, 2013. OCZ has put up for collateral 65% of the voting equity interest in its Korean subsidiary, Idilinix. OCZ's CEO, Ralph Schmidt, said in an update that the company had paid down its debt to Wells Fargo from $15 million to $7 million on 12/31/12.

OCZ investors have said that by paying down its debt, its an indication that OCZ is making money now. I'm more pessimistic. It's more likely that OCZ isn't making money, and is only paying off its debt because its forced to, and it is getting money by selling off its inventory at discounted prices. If the company is doing well, and getting deals, it would seem that Wells Fargo would be aware of this and not cut off its credit. Since Wells Fargo is a credit holder, and not a shareholder, it can get access to information that would be inside information to shareholders.

2. OCZ's Inventory Is Dwindling

In the same update, Schmidt said that its inventory is now below $50 million. He doesn't say how much less than $50 million it is. That's far lower than its reported inventory of $125.7 million reported on May 30, 2012. This makes me think OCZ's only able to keep the lights on by thinning out its inventory at discounted prices.

What is also disturbing to me is that Schmidt also talked up the products showcased in the Consumer Electronics Show (CES) in Las Vegas. If OCZ is depending on sales to take off from new business generated from the CES, then it seems to be a case of "too little too late" for the company.

3. Seagate Has Partnered With Someone Else

A lot of talk was going on in the message boards about OCZ being taken over by Seagate (NASDAQ:STX). Buyout rumors are what was partially fueling the speculation. However, those rumors are pretty much dead at this point. On 1/28, Seagate reported partnering with Vrident to make enterprise SSDs. This is a crushing blow to OCZ. For OCZ to survive, it needs to sell enterprise SSDs, as described in this article. However, it's a catch-22. For enterprises to buy SSDs from OCZ, they need assurance that the company will survive. For OCZ to survive, it needs to sell enterprise SSDs. Consumer SSDs have lower margins than enterprise SSDs, and alone is not enough for the company.

4. OCZ Is Trying The Latin Market - Could Be A Last Resort

It looks like OCZ is grasping at straws by looking to sell consumer SSDs to Latin markets. First of all, this is consumer SSDs, when OCZ needs to sell enterprise SSDs to survive.. Secondly, trying to hit the Latin markets is a long-term endeavor. It will take a long time to establish solid distribution in Latin countries. They are less developed countries and less technologically sound than the US and Europe. In order to survive OCZ needs short term results right away.

Will OCZ survive or get picked apart piece by piece? My prediction is the latter.

Disclosure: I am short 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.