SSD manufacturer OCZ has been on a rollercoaster ride as of late, and the situation is getting substantially worse with allegations of securities fraud and numerous investigations.
At the beginning of 2012, OCZ Technologies’ outlook was rosy. Their stock was on an upswing (it hit a peak of $9.41, valuing the company at over $600 million), order quantities were strong, demand for their solid state drives was increasing and revenue projections looked very promising. Some wondered if the growth was sustainable but OCZ continually beat the street’s expectations and investors were happy.
Unfortunately, through March, April and May of this year, OCZ’s share price gradually declined due to a number of market and internal conditions. There was even a widely rumored buyout that never happened but speculative interest was boosted nonetheless. Throughout this time, many investors agreed that the $5 to $6 range where OCZ’s stock finally landed placed the company at its true value.
Then came the unexpected resignation of founder and long-time CEO Ryan Peterson. Sensing blood in the water, some pundits claimed that OCZ was once again a takeover target and both Seagate and Micron were named as potential suitors.
Now things have become dramatically worse for this one-time darling of the tech industry. In an investor advisement last week, OCZ claimed they needed additional time to file their SEC-mandated Q2 earnings results. Normally, this would be cause for concern but due to the rapidly changing structures within OCZ, some expected that a late filing was inevitable.
What no one expected was the bombshell OCZ dropped with their extension request: a statement that previously strong sales and revenue forecasts didn’t take into account generous discounts at the retail and system builder level. These customer incentive programs effectively inflated previous projections and went largely unreported by OCZ in past forecasts. As a result, according to OCZ, their Q2 revenue will be “substantially” lower than their initial $100-120 million forecast and they could be faced with a significant budgetary shortfall.
Naturally, after these revelations, the investing community jumped ship and the impact upon OCZ’s stock price was nothing short of a bloodbath. In the last week, the company has shed nearly 50{b81fbfd19e1fca5890798868c0714c408bbd5ec471654b6f9630c0fffa6e7eb3} of its value and as of this article’s posting shares are trading at a mere $1.49. They are also staring down the twin barrels of numerous investigations and lawsuits which allege securities fraud alongside other infringements. This situation has prompted some analysts to predict that the only way some of OCZ’s assets can be secured is through a bankruptcy filing.
The situation for OCZ couldn’t be worse. While they have a new CEO, loyal customers, a constant revenue stream and many valuable technologies, such a dramatic downturn will negatively impact confidence in their business structure. In addition, the numerous lawsuits and investigations could make them a pariah rather than a company that’s buyout-worthy. OCZ has been through adversity before and there’s hope things will turn since the new CEO seems to have recognized the issues and has already taken remedial steps. The next three months will be critical to the future of this company.
