Stec: Fiscal 1Q10 Financial Results

(in US$ millions)	1Q09	1Q10
Revenues	63.5	38.8
*Growth*		-39%
Net income (loss)	3.0	(5.4)

STEC, Inc. announced the Company’s financial results for the first quarter ended March 31, 2010.

Revenue for the first quarter of 2010 was $38.8 million, a decrease of 38.9% from $63.5 million for the first quarter of 2009 and a decrease of 63.4% from $106.0 million for the fourth quarter of 2009.

GAAP gross profit margin was 34.0% for the first quarter of 2010, compared to 36.3% for the first quarter of 2009 and 50.9% for the fourth quarter of 2009. GAAP diluted loss per share from continuing operations was $0.11 for the first quarter of 2010, compared to GAAP diluted earnings per share of $0.07 for the first quarter of 2009 and $0.47 for the fourth quarter of 2009.

Non-GAAP gross profit margin was 34.2% for the first quarter of 2010, compared to 39.8% for the first quarter of 2009 and 51.0% for the fourth quarter of 2009. Non-GAAP diluted loss per share from continuing operations was $0.08 for the first quarter of 2010, compared to non-GAAP diluted earnings per share of $0.17 for the first quarter of 2009 and $0.51 for the fourth quarter of 2009. GAAP results in the first quarter of 2010 included employee stock compensation, restructuring costs and employee severance.

Business Outlook
"The first quarter of 2010 was a challenging quarter as anticipated; however, we exceeded our original projections including both revenue and EPS guidance while continuing to generate positive cash flow from operations," said Manouch Moshayedi, STEC’s Chairman and Chief Executive Officer. "Previously, we had stated that the first half of 2010 would be a trough period for our business due to an inventory carryover from 2009 into this year by our largest customer. While we don’t have full visibility into customer inventory levels, we have now received indications that the inventory situation has been substantially resolved, including receipt of new purchase orders for deliveries of our ZeusIOPS during the current quarter. We have also been encouraged by the recent introduction of automated data tiering software by certain Enterprise customers, a development which we believe will support broader adoption of SSDs within the Enterprise environment and lead to increased activity from other customers."

Guidance
"We currently expect second quarter of 2010 revenue to range from $48 million to $50 million with diluted non-GAAP earnings per share to range from $0.00 to a loss per share of $0.03."

Comments

Since 4Q09, Stec is in financial trouble, due to an inventory carryover by EMC following the lower demand from the storage giant. Furthermore, class action securities complaints and shareholder derivative actions were filed against the SSD company and certain officers and directors; it costs already $500,000 for attorneys' fees and costs. And finally Stec now has more serious competitors in enterprise flash disk drives.

Revenues grew 8% sequentially in 4Q09 and then decreased by 63% in 1Q10 even if the $38.8 million figure is a little better than expected. But we are far from the record $106 million in sales registered in 4Q09.

Stec turned to $5.3 million net loss in the last quarter compared to $25.8 million net income for the preceding three-month period.

For next quarter Stec expects sales to continue to decrease, from 10% to 15%. But the rumor of an eventual acquisition of Stec by IBM, EMC's competitor, is not a good sign for new purchases by Stec's largest customer.

It it the end of the success story for a firm dominating the high-end SSD market with prestigious customers including 3par, Compellent, Dot Hill, HP, EMC, Fujitsu, HDS, IBM, Isilon, LSI, NetApp and Sun?