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OCZ Technology Group AŞ Message Board

  • pjmullen25 pjmullen25 Dec 11, 2012 7:56 PM Flag

    Let's Consider the Worst Case

    I'm sick of seeing people blindly pumping the stock and I'm also sick of people who are blindly saying the company is going bankrupt and getting delisted.

    Consider these points:

    Will the company go bankrupt?

    First, let's think about who the company owes money to. As of June, their accounts payable make up 95% percent of their total liabilities. The companies assets are nearly 4x their total liabilities. Their cash alone could pay down nearly half of their total liabilities, and their total inventory easily covers all of their liabilities combined. They have a current ratio of nearly 3, so they can essentially pay their existing debt three times over.

    While their inventory has increased each quarter over the last four quarters, their net receivables have also increased YOY. This shows that the investment into manufacturing more product is directly resulting in increased sales. The future of SSDs isn't in jeopardy. SSDs are growing tremendously in popularity as their superior performance continues to be proven. This will continue to be shown in the coming quarters.

    If the company was intentionally trying to defraud investors, they wouldn't have internally made the decision to postpone last quarters results. They would have just continued producing false reports until a year later when we would have seen their management behind bars. The fact that they noticed their was a mistake and are making efforts to address is encouraging.

    Logically think about what they've told us about why they have not provided their quarterly report. From my understanding, it was due to the customer rebate program costing the company more than expected and that this was not accurately accounted for in their financial statements. Consider the worst case scenario that their cost of revenue was higher than expected. So their gross profit would be less. Does a smaller gross profit automatically mean bankruptcy??

    Consider the fundamentals of the company, the demand for the product they sell, their position in the market, and whether or not there will continue to be demand for their product.

    You can be short, you can be long, but if you are going to join the herd atleast drink upstream from it.

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    • PJ, it's nice to see a well thought out post, but you need to do a little more DD....

      - OCZ lost a significant amount of money in Q2 & likely more money in Q3. Management has stated NEGATIVE GM's for Q2. They will at least lose $40M for Q2 on operation expenses alone, which would be all of their cash. Add in the loss on sales & it's likely to be $60M+...$80M wouldn't surprise me based on the drive discounts I saw, along w/ how long we've had to wait for the Q2.

      - They have already acknowledged accessing their credit facility, so they have more debt than you know about. It's likely they borrowed all $40M allowed under the terms of the agreement, because when the Q2 comes out, they will not be in compliance w/ the terms. The credit facility was good up to $100M if certain criteria were meet, but they will be nowhere near those numbers for the foreseeable future.

      - Not only did they forecast flat revenues for Q2, they announced a short fall, then they came in even short of that due to the rebate "scandal". It's likely to only have $90-100M in Revenue in Q2.

      - Also, they mentioned a write down on inventory, so who knows how much that'll be. Worst case scenario, a $120M+ inventory will "magically" turn into $60M.

      There are some positives I didn't go into, but this is a worst case scenario post. :)

      • 1 Reply to tradn2live
      • Great post. Really appreciate the response and could not agree with you more. I was trying to calculate how much damage they could have possibly done last quarter to their balance sheet, but I think you're right on the money.

        Even though we know they operated with a negative gross margin, which I'm definitely not advocating, how much of a hit could they have taken in one quarter to their current assets. I see that their cash took a 50% hit in the 2nd quarter. But combining their net receivables, inventory, and other assets, I imagine a good portion of that reduction was due to purchasing more inventory which went into their net receivable. I'm sure it also went into floating the cost of their overhead expenses.

        I'm sure you're right, they probably essentially have zero cash on hand at the moment if they had another Q2 type of quarter which would explain the reason for tapping into some sort of a credit line. But I would assume their inventory and net receivables increased quite a bit which would explain the reasoning for how quickly they are selling off their inventory and the reduction in their workforce.

        My guess (just a guess), would be that the company is restructuring by selling off their current inventory to quickly get extra cash on hand, reduce the cost of their overhead, and focus on higher margin products to reduce the overhead of their low margin product line.

        I still imagine that the company has a current ratio somewhere above 2. By the sound of the new management, they are doing all of the right things to be operating in the black moving forward such as focusing on higher margin products, reducing their work force, and getting rid of their rebate programs.

        The fundamentals don't change in that the company is still producing a product that is continually increasing in popularity. In addition, the management sounds competent enough that they recognized a huge problem in their business and are taking the right steps to move the company forward.

    • I just got done reading several reviews of their Vertex 3 and Vertex 4 SSDs. Honestly, this does not jump out to me as a company that is going under.

      On a performance basis, they are on par with the leaders in the industry. They are priced extremely competitively, they have access to NAND, and they make their own controllers.

      At this point, even if the financial states come out showing they took a hit due to a high COGS, the share price is at over a 50% discount from the BV and down 80% on the year. If the company shows ANY relative sign of stability, this thing will trade ATLEAST on par with it's book value.

      Sentiment: Hold

      • 2 Replies to pjmullen25
      • Don't forget the Vector. That thing is an amazing product! All of this is mute though if the company doesn't produce something on this missing 10Q, either a plan or file the darn thing already. This is the point that makes no sense. From all high level glances everything appears to be going awesome. Sales have to be pegging best rates in a long time with these products, their prices for all products have been increased and they continue to boast high "best seller" scores on various etailers, and all rebates have literally evaporated. That all being taken into account almost no one will care what the 2nd Q 10q looks like if they are projecting anything near break even or even profit for the current quarter and they have ample cash levels. This is the baffling part. Why continue to drag this on then?! Just file and get it over with already. What is the reason to run it to the wire?

        Sentiment: Strong Buy

      • Finally. A constructive thread. Small time trader here so I don't have anything to add but do have a position in OCZ as of yesterday. In the hole a few bucks but sure that will change for the better. SSD's are definitely gaining in popularity and OCZ is one of the more mentioned names in reviews. Buy on the dips now.

        Sentiment: Buy

    • Absolute worst case is Ralph didn't fully know the depth of the issues facing OCZ at the time he elected to take the position. While the previous CEO was responsible to the BOD, bottom line, he was in charge and capable of doing anything he wanted. If the depth of the concerns were further along than anyone anticipated or fully understood, then there could still be fallout.

      However, Ralph has recently made comments to the company back on track. That leads many to believe most of the outstanding issues have been addressed. The lack of the 10Q this close to the required date is freaking people out, me included. If the issues are close to resolution, I would think bare minimum the CEO would do is either release the 10Q, file for the extension via submission of his plan, schedule a conference call for investors to go over either of the above, or just already go full tilt and release the 2nd Quarter 10Q, release the 3rd Quarter 10Q and have an earnings call thereby containing the 2nd Q 10Q news with the 3rd earnings release and 4th Q projections. I would have bet the last option, however NO CALL HAS BEEN SCHEDULED! Which to me is absolute lack of transparency, lack of commitment to shareholders, and plain out lacking decency to the people invested. Sorry, I freaked again. My bad.

      Sentiment: Hold

    • "If the company was intentionally trying to defraud investors, they wouldn't have internally made the decision to postpone last quarters results. They would have just continued producing false reports until a year later when we would have seen their management behind bars. The fact that they noticed their was a mistake and are making efforts to address is encouraging"

      why did ryan and the cfo quit? maybe the sec wasn't looking at ocz back then but those two? seems to me ocz only opened the books when the knew they were looking??