OCZ Technology's Q4 Miss Doesn't Make it a Bad Long Term Prospect
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Maker of solid-state drives and computer components OCZ Technology’s (NASDAQ: OCZ) top line rocketed towards the sky in the fourth quarter, but failed to meet analysts’ estimates. Also, the company failed to meet bottom line expectations and posted a loss, sending its shares down by 14%.
But is OCZ’s miss in the quarter enough to ignore its long-term prospects? I don’t think so. Let’s see why.
Great revenue
OCZ’s revenue in the quarter shot through the roof to $110 million, an astounding growth rate of 71% from last year’s comparable quarter. On a full year basis, the company posted a whopping 92% jump in revenue from fiscal 2011. The revenue jump was driven by the supersonic growth of its SSD business which grew 154% from last year. Thus, OCZ is doing a remarkable job expanding its top line. In comparison, industry peer STEC (NASDAQ: STEC), which is slated to release earnings next week, has seen its revenue decline over the last four quarters.
Great margins
Soaring revenue in the quarter was further helped by the controlled cost of production. OCZ’s production costs jumped around 54% but were lower than the growth in revenue. As a result, the company managed to improve its gross margins to 25% in quarter from around 17% in the year-ago period. Moreover, OCZ is working further towards expanding its margins by purchasing NAND flash directly from the spot market as against the earlier method of purchasing it through brokers. In addition, the recent consolidation of its facilities in Taiwan is expected to help OCZ in bringing down costs further, thereby lending more support to gross margins.
So where’s the glitch?
OCZ is a player in the rapidly growing SSD industry. Analysts believe that this industry has huge potential going forward and is expected to grow at a compounded annual growth rate of 51% over the next four years. To add to that, OCZ is the world’s largest independent maker of SSDs, placing it in a great spot to gain from the industry’s growth.
And the company is doing its best to maintain its leadership position in the industry. OCZ tripled its research and development expenditure from last year, focusing on acquisitions and recruiting personnel. The company’s sales force increased three-fourths from last year. Furthermore, OCZ says it will pursue its expansion activities aggressively, spending between $43 million to $47 million every quarter. Clearly, the company is looking to strengthen its foundations to capitalize on the long-term opportunities which the industry will present.
The takeaway
OCZ expects revenue to be between $110 million to $120 million, which is just about at the mid-point of analysts’ expectations of $115.4 million. However, the company’s full year outlook is far ahead of what the Street expects, with the mid-point projected at $665 million as compared to $513 million projected by analysts. Here lies a small indication of what to expect from OCZ. The company is building its blocks step by step, focusing on long-term gains.
OCZ might have failed to meet expectations in the previous quarter. But if you are willing to play the waiting game, OCZ might just be the stock which could find a place in your portfolio.
TechJunk13 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.
