Stec: Fiscal 3Q11 Financial Results

(in US$ millions)	3Q10	3Q11	9 mo. 10	9 mo. 11
Revenues	86.1	72.5	186.2	249.9
*Growth*		-16%		*34%*
Net income (loss)	13.6	4.8	11.1	28.7

STEC, Inc. announced financial results for the third quarter ended September 30, 2011.

Revenue for the third quarter of 2011 was $72.5 million, a decrease of 15.8% from $86.1 million for the third quarter of 2010 and a decrease of 12.1% from $82.5 million for the second quarter of 2011.

GAAP gross profit margin was 45.8% for the third quarter of 2011, compared to 46.4% for the third quarter of 2010 and 44.7% for the second quarter of 2011. GAAP diluted earnings per share from continuing operations was $0.09 for the third quarter of 2011, compared to $0.26 for the third quarter of 2010 and $0.18 for the second quarter of 2011.

Non-GAAP gross profit margin was 46.0% for the third quarter of 2011, compared to 46.5% for the third quarter of 2010 and 44.9% for the second quarter of 2011. Non-GAAP diluted earnings per share from continuing operations was $0.14 for the third quarter of 2011, compared to $0.31 for the third quarter of 2010 and $0.23 for the second quarter of 2011.

Business Outlook
"Despite the challenging environment, we were able to beat our guidance for the third quarter and continue to believe that there is a major role and opportunity for our company in the growing data storage industry," said Manouch Moshayedi, STEC’s Chairman and CEO.

"Currently, we have the next-generation of two of our major product lines – ZeusIOPS SSD (fourth generation) and MACH16 SSD – in qualification with most of our OEM storage and server customers. Even though SSD adoption is taking hold, the current price of SSDs has continued to hinder full adoption. We believe that we are in a period of transition for the industry and that this pricing impediment will be solved with the replacement of FPGA with ASIC designs and SLC Flash with MLC Flash. The next versions of our products will include both of these advances. Our customer base continues to expand as we add to our success in qualifying our drives into large, established OEMs and by introducing them into more platforms of emerging storage companies. Incorporating MLC Flash technology, our fourth generation ZeusIOPS will give our OEM customers and their end-user customers a far-superior level of performance at comparable or better pricing than that of lesser-performing alternative products, including SSD products using a SATA-bridge. Being able to offer customers superior performance at declining average selling prices continues to be imperative for driving adoption of SSDs into the Enterprise.

"We also have two new products in qualification, our PCIe Solid-State Accelerator (SSA) and our EnhanceIO data caching software. By incorporating the same proprietary core technologies developed for our ZeusIOPS, we plan to deliver our PCIe product to the server market at price points that are significantly less than similar products in the market today. Our EnhanceIO data caching software, PCIe SSA and MACH16 SSDs provide us with a greater reach into the sizeable and growing SSD Enterprise-Server market. Considered an SSD-adoption driver in this sector, our EnhanceIO software is designed to optimize SSD usage and performance in any SSD-enabled server environment, not only those using STEC SSDs but others as well.

"We expect many of our customers to complete qualifications – which typically take nine to twelve months – on these key products by the end of the second quarter of 2012. Our product development and qualification efforts will continue unabated through this transitional period in order to renew the growth trajectory of business in the latter half of 2012.

"During the third quarter of 2011, our Board of Directors approved two stock repurchase programs for a total of $55 million of STEC’s common shares. From August through the beginning of October 2011, we completed both stock repurchase programs resulting in the repurchase of 5,610,611 shares. This reflects the confidence that our management team and Board has in STEC’s long-term strategy and growth prospects."

Guidance
STEC’s current expectation for the fourth quarter of 2011 is as follows: