OCZ exits memory module markets and answers our questions
Earlier this week it was announced in a press release and during a conference call that OCZ Technology would be exiting the memory modules business as of the end of February 2011:
stockholders to accelerate plans to discontinue its remaining DRAM
module products by the end of its current fiscal year...
Earlier in 2010 OCZ made it a point to focus only on the more profitable high-end enthusiast class memory modules but apparently that didn't work out either and the company is going in another direction completely. The reason behind this should be obvious to anyone that follows the PC market - prices have dropped considerably and the ability for differentiating modules has deteriorated. While not too long ago the newest water-cooled overclockable memory was a noteworthy component launch, it's been quite some time since enthusiasts were truly excited about memory. Sad, but true.
Don't cry for OCZ though, they have other things going for them though.
Source: OCZ Technology
Based on what we have seen from OCZ in the world of solid state technology this seems like a reasonable decision.
Still, seeing one of the companies that created the enthusiast memory market bow out is a move we didn't want to see happen and we had some questions and concerns. I sent over a list of questions to the marketing team and Alex Mei, Executive VP and CMO of OCZ Technology, hit us back with some answers.
PC Perspective: When did you first enter the memory market?
PCPer: What about the memory market made it unprofitable?
PCPer: What are your plans for honoring warranties on existing modules?
PCPer: Do you think leaving memory will hurt the OCZ branding in the future?
PCPer: What products are overtaking the OCZ lineup going forward?
PCPer: Do you think those can sustain the company into the future?
There isn't much else to say here other than we are glad to hear that OCZ plans on taking care of those consumers that have purchased OCZ memory products over the years. The question that remains for us is whether other companies like Corsair, Kingston, Patriot, G.Skill, etc. are going to take the same move or simply take the added marketshare for themselves. Obviously there is turmoil in the DRAM segments and I don't think we have seen the end of the movements for 2011.
See below for the full OCZ press release that set off this discussion:
Net revenues in Q3'11 were a record $53.2 million, and increased 40% both on a year-over-year and sequential basis, from $38.0 million reported in Q3'10 and in Q2'11.
SSD revenues reached a record $41.5 million in Q3'11, an increase of 325% over Q3'10 SSD revenues of $9.8 million, and a 105% increase sequentially over Q2'11 SSD Revenues of $20.2 million.
In August 2010, the Company announced a strategic optimization of its memory products whereby it discontinued certain unprofitable commodity memory module products with the intent to continue only with certain high-performance memory products. However, since that time, there has been well-chronicled, continued weakness in the global DRAM markets.
Having balanced this DRAM market weakness against the capital needs of the Company's growing SSD products, the board has determined that it is in the best interests of the stockholders to accelerate plans to discontinue its remaining DRAM module products by the end of its current fiscal year of February 28, 2011. Accordingly, our DRAM products are now expected to have minimal, if any, sales in the next fiscal year and beyond.
Reporting on a GAAP basis, which includes certain items related to the accelerated discontinuation of the Company's DRAM products, the acquisition of certain intellectual property, changes in warrant derivative valuation, and other non cash charges, GAAP net loss for Q3'11 was $8.3 million, or $0.29 loss per diluted share. This compares to GAAP net loss of $1.0 million, or $0.05 loss per share in Q3'10.
Non-GAAP net loss for Q3'11 was $0.9 million, or $0.03 loss per diluted share, as compared to non-GAAP net loss for Q3'10 of $1.6 million, or $0.07 loss per share. A reconciliation between GAAP and non-GAAP information is contained in the tables below.
- SSD revenue increased 325% year-over-year, to $41.5 million in Q3'11, representing 78% of net revenue
- Positive non-GAAP operating income of $0.1 million in Q3'11 compared to a non-GAAP operating loss of $1.0 million in Q3'10
- Positive non-GAAP Adjusted EBITDA of $0.4 million in Q3'11
- Non-GAAP gross margin increased to 19.4% in Q3'11
- Accelerated the discontinuation of remaining DRAM module products
- Company raised $22 million in a private placement to several institutional stockholders priced at a premium to the then-market price
- Recently began shipping Deneva Series Enterprise SSDs in mass production quantities to a new Tier 1 OEM client
- OEM SSD business continued to ramp, with numerous new client wins such as BOLData and Falcon Northwest Computer Systems, while several current clients ramped shipments of SSDs
- Recently began shipping High Speed Data Link (HSDL) enabled IBIS SSD drives in mass production quantities to select clients
- Launched the 2nd generation REVO X2 PCIe based SSD with up to 150k random write IOPS , in capacities up to 960GBs , and deployed with key high performance workstation OEMs
- Acquired certain Fibre Channel interface and DRAM based SSD controller technology from Solid Data Inc, in order to facilitate the company's move into Fibre Channel and low latency enterprise SSD Segments
- Began mass production of 2xNm based SSD for low cost applications and started sampling 2xNm based high durability SSDs for Enterprise Server and Storage applications
- Opened new SSD manufacturing facility in Taiwan, nearly quadrupling our manufacturing capacity with the addition of two new SMT lines, the first in October and the second which has just come on-line
"Revenue generated from our Solid State Drive products for the third fiscal quarter more than doubled on a sequential basis," said Ryan Petersen, Chief Executive Officer of OCZ Technology. "SSD revenue accounted for 78% of our revenue and just by itself exceeds our historical quarterly revenue totals across all categories, thus reinforcing our decision to discontinue our remaining DRAM products."
Mr. Petersen concluded, "We have focused on building the OEM and enterprise segments of our business, and last month we announced a mass production order from a Tier 1 OEM for our enterprise class SSDs, reflecting the reliability, speed and total cost of ownership solid state drives provide over traditional mechanical hard drives. We believe the market opportunity for SSDs is significant, and to that end, we will continue to invest in research and development to extend our leadership position. We also plan to increase our sales and marketing efforts in order to facilitate continued revenue growth and increased market share as SSDs gain adoption in all segments."
To help investors better understand OCZ's historical revenue trends and its rapid product transition from high performance memory into SSDs, a revenue chart is shown below for the last 9 quarters: