STEC Still Disappoints, Loss Widens - Analyst Blog
March 18 2013 - 3:40AM
Zacks
STEC Inc.’s (STEC)
fourth-quarter 2012 adjusted loss per share of 42 cents was wider
than the Zacks Consensus Estimate of 39 cents loss per share. The
adjusted or non-GAAP loss per share excludes employee severance
fees, litigation costs and deferred tax valuation allowance, but
includes stock-based compensation expense. The quarter’s loss per
share was significantly wider than a loss of 7 cents per share
incurred in the year-ago period. The disappointing result was due
to higher costs, lower pricing and market share loss.
Revenues
Total revenue for the fourth quarter was $35.1 million, down 39.6%
on a year-over-year basis. The quarter’s result missed the Zacks
Consensus Estimate of $38.0 million and the company’s guided range.
The sales decline was due to market share loss.
Operating Results
Reported gross margin in the quarter was 32.2%, down from 41.1% in
the year-ago quarter. Higher percentage of fixed production
overhead and labor costs on revenues and competitive pricing pulled
down the gross margin. This was partially offset by favorable
flash-component costs.
Operating margin was (68.3%) versus (9.3%) in the year-ago quarter.
The company’s total operating expenses increased 20.5% on a
year-over-year basis. Higher operating expenses were mainly due to
49.2%, 17.8% and 6.5% year-over-year increases in general and
administrative, selling and marketing, and research and development
expenses, respectively.
Net loss on a GAAP basis was $23.2 million or 50 cents per share
compared with a net loss of $3.6 million or 8 cents in the year-ago
quarter.
After excluding non-recurring items associated with cost of sales
and operating expenses after taxes but including stock-based
compensation expense, adjusted net loss for the fourth quarter was
$19.8 million or 42 cents per share versus $3.4 million or 7 cents
loss per share in the year-ago quarter.
Balance Sheet & Cash Flow
Cash and cash equivalents were $158.2 million versus $186.2 million
in the previous quarter. Inventories were at $41.8 million compared
with $44.5 million in the prior quarter. Receivables were $13.5
million versus $13.2 million in the prior quarter. Cash from
operating activities was $21.3 million, up from $18.1 million in
the prior quarter. Capital expenditure was $1.8 million compared
with $2.5 million in the prior quarter.
Outlook
Earlier, STEC marketed its products through OEMS (original
equipment manufacturers). However, since the past few months, it
has been marketing its products directly to enterprises and
end-users. Management believes that the transition could lead to
solid contributions from enterprise verticals. With this
diversification strategy, the company believes that customer
concentration risks will be mitigated. Moreover, the company
expects the diversification procedure to start paying off from
2013.
For the first quarter 2013, management expects revenues in the
range of $21.0–$23.0 million. Non-GAAP loss per share is expected
between 40 cents and 41 cents.
Management also stated that the company has hired some experienced
personnel from the storage industry to boost its sales and
marketing efforts. This will provide support to revenue growth,
going forward.
Our Take
STEC’s fourth-quarter results were disappointing as both the top
and bottom lines missed the Zacks Consensus Estimates. Moreover, it
marked five straight quarters of loss for the company. The
first-quarter guidance announced by the company is disappointing as
management believes that the diversified marketing strategy will
take some time to pay off.
Also, intense competitive pressures from SanDisk
Corporation (SNDK), Micron Technology
Inc. (MU) and OCZ Technology Group (OCZ)
are concerns.
Currently, STEC has a Zacks Rank #4 (Sell).
MICRON TECH (MU): Free Stock Analysis Report
OCZ TECHNOLOGY (OCZ): Free Stock Analysis Report
SANDISK CORP (SNDK): Free Stock Analysis Report
STEC INC (STEC): Free Stock Analysis Report
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