STEC finally reports a big number. Consensus was 59 mil and 11 cents – they report 63.5 mil and 17 cents. Gross margins were the big surprise, rising 7.5% sequentially to 39.8%. The company indicated gross margins on ZeusIOPS, the drive used by their major OEMs for enterprise solutions, were above 40% and will head toward 50% next quarter. Guidance of 68-70 mil and 20-22 cents is well ahead of consensus of 59 mil and 10 cents. Higher margin enterprise solid state drives will account for more than 50% of business in the second quarter and DRAM products, which were 100% of business a couple of years ago, were 12% of revenues this quarter and will continue to shrink.
Weisel throws out 94 cents for this year and an aggressive $1.45 for next. The stock is up 30+% pre-opening.
I have to say, I’m a little confused about their margin structure. They said they have long-term procurement deals with their suppliers to buy specialized 16mb SLC NAND at fixed prices that are not tied to contract. It’s extremely unusual if that’s the case. I’d like to better understand their deal.
STEC indicated they see no firm competition in the enterprise SSD space and don’t expect any for the rest of the year at least, though clearly competitors will try to encroach over the coming quarters. Dell had designed STEC into their higher end Mini and it sounds like that business will fade to zero next quarter, presumably replaced by Samsung. The good news there is the bears can’t use it as a negative catalyst anymore once Dell is no longer a customer.
Despite the rollercoaster ride, I still own some, though not in the size I did at lower prices.