STEC's Q2 Loss Widens

Zacks

STEC Inc.’s (STEC) second-quarter 2013 adjusted loss per share of 50 cents was wider than the Zacks Consensus Estimate of 48 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 also significantly wider than a loss of 36 cents per share incurred in the year-ago period. The disappointing result was due to continuous revenue erosion.

Revenues

Total revenue for the second quarter was $23.5 million, down 42.4% on a year-over-year basis. The quarter’s result missed the Zacks Consensus Estimate of $24.0 million and was at the lower end of the company guided range. The sales decline was due to market share loss.

Operating Results

Reported gross margin in the quarter was 28.0%, down from 36.6% in the year-ago quarter. Higher percentage of fixed production overheads 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 (130.0%) versus (56.0%) in the year-ago quarter. The company’s total operating expenses decreased 2.1% on a year-over-year basis. Lower operating expenses were mainly due to 22.5% year-over-year decline in research & development expenses. This was partially offset by a 20.9% increase in general & administrative expenses and 7.9% growth in selling and marketing expenses.

Net loss on a GAAP basis was $30.4 million or 65 cents per share compared with a net loss of $49.6 million or $1.07 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 second quarter was $23.6 million or 50 cents per share versus $16.6 million or 36 cents loss per share in the year-ago quarter.

Balance Sheet

Cash and cash equivalents were $116.3 million versus $132.9 million in the previous quarter. Inventories were at $41.5 million compared with $42.1 million in the prior quarter. Receivables were $8.2 million versus $7.3 million in the prior quarter.

Our Take

STEC’s second-quarter results were disappointing as both the top and bottom lines were significantly down from the year-ago quarter. The company suffered the seventh consecutive quarter of loss.

The company did not provide any guidance as it has been acquired by ace hard disk drive manufacturer Western Digital Corp. (WDC) and will soon start operating under its HGST (Hitachi Global Storage Technology) unit. The deal is expected to be wrapped by the end of 2013.

Currently, STEC has a Zacks Rank #3 (Hold). Investors can look out for similar stocks with brighter visibility. SanDisk Corp. (SNDK) and Micron Technology Inc. (MU) have a respective Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy) and are worth buying.

Read the Full Research Report on STEC

Read the Full Research Report on WDC

Read the Full Research Report on SNDK

Read the Full Research Report on MU

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