STEC: Fiscal 2Q08 Financial Results

STEC, Inc. announced its financial results for the second quarter ended June 30, 2008. Revenue for the second quarter of 2008 was $56.2 million, an increase of 28.6% from $43.7 million for the second quarter of 2007, and an increase of 10.8% from $50.7 million for the first quarter of 2008.

Non-GAAP gross profit margin was 35.3% for the second quarter of 2008, compared to 31.7% for the second quarter of 2007, and 34.6% for the first quarter of 2008. Non-GAAP diluted earnings per share was $0.09 for the second quarter of 2008, compared to $0.05 for the second quarter of 2007, and $0.07 for the first quarter of 2008.

GAAP gross profit margin was 32.3% for the second quarter of 2008, compared to 31.3% for the second quarter of 2007, and 32.9% for the first quarter of 2008. GAAP diluted earnings per share from continuing operations was $0.03 for the second quarter of 2008, compared to $0.04 for the second quarter of 2007, and $0.04 for the first quarter of 2008. GAAP results in the second quarter of 2008 include start-up costs related to the Company’s Malaysia facility, costs related to its global tax restructuring and the corresponding short-term impact of this restructuring on the Company’s effective tax rate and employee stock compensation expense. Non-GAAP results are explained and reconciled to GAAP results in tables included in this release.

Our SSD Market Initiatives

Enterprise-Storage and -Server Markets
"We are excited to announce that we recently received notice of a design win from one of the largest Enterprise Storage and Server OEMs, confirming our qualification across multiple platforms using our ZeusIOPS and Mach8/IOPS SSDs," said Manouch Moshayedi, CEO of STEC, Inc. "We expect production revenue from these platforms to begin in the fourth quarter of this year. This is our second large Enterprise OEM customer win. We are in the later stages of qualification for our ZeusIOPS SSDs with several other key Enterprise-Storage customers. In addition, we are in the later stages of qualification with several leading Enterprise-Server OEMs for our Mach8/IOPS SSD products. We anticipate that we will be announcing additional qualifications at other major Enterprise OEMs by the end of this year. Further, we expect that both of these product lines will contribute significantly to our growth in 2009."

Notebook and Ultra-Mobile Notebook Markets
"Our MLC-based products have now been qualified at a number of leading Notebook and the Ultra-Mobile Notebook OEMs. We believe the current environment of falling NAND Flash prices will help to further reduce the price of SSDs to the end-customer and stimulate demand in both of these markets. We expect to begin shipping production units into these markets in third quarter of 2008."

Inventory Management
"We increased our inventory significantly in the second quarter of 2008 primarily as the result of the procurement of $40 million in NAND-Flash components in response to customer forecasts and orders related to new product launches set for the second half of 2008 and the first quarter of 2009. We believe that these purchases will enable us to have sufficient inventory to meet our pricing obligations and secure our gross margins on sales related to these product launches. This was a necessary and precautionary measure to avert price fluctuation risk and to ensure that supply is available when needed. Over the next several quarters, we expect our inventory DSOs to decrease."

Business Outlook
"We are very pleased with our results for the second quarter of 2008 having surpassed our second quarter revenue and non-GAAP diluted earnings per share guidance. The execution of our Solid State Drive initiatives in four major markets – Enterprise Storage, Enterprise Server, Notebook and Ultra-Mobile Notebook – positively impacted second quarter of 2008 results and we expect continued growth in subsequent quarters. In addition, we have recently closed a $35 million revolving credit facility. This facility will add to our liquidity and enable us to manage the future growth of our business. Furthermore, this financing comes with a relatively low cost of capital and is considerably less dilutive to our shareholders than an equity offering."

Guidance
"We currently expect third quarter of 2008 revenue to range from $61 million to $63 million with diluted non-GAAP earnings per share to range from $0.10 to $0.11. Additionally, in light of our mounting design win activity at key customers, we believe we will continue to have strong performance into the fourth quarter of 2008 with double-digit growth from the third quarter of 2008. This momentum will carry us into the first quarter of 2009 and even beyond."