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Serious business operations should be predictable to some degree. Giving investors more information helps with that predictability. This makes me wonder why solid-state storage specialist STEC (Nasdaq: STEC  ) is playing its cards so close to the vest. Does the company have anything to hide?

Last night's second-quarter report showed a strong rebound from the first quarter, when boffo customer EMC (NYSE: EMC  ) decided to work through its inventories rather than buy new STEC drives. Revenue jumped 58% sequentially as a result, though $61.3 million is still 29% below the year-ago period. Gross margins opened up again, and the bottom line turned $0.11 of first-quarter losses per share into earnings of $0.06 per share.

The burning question on every investor's mind at this point should be, "What's up with EMC?" Unfortunately, CEO Manouch Moshayedi addressed the recent past of that relationship like this: "As anticipated, the inventory carryover situation at our largest customer was resolved during the second quarter."

And that's it. There was no mention of how EMC's ordering patterns are shaping up for the next quarter -- or for the long haul. You may infer a positive trend from revenue guidance some 29% above the results of this quarter, but even that is an unqualified leap of faith.

And the earnings call, where analysts like to hash out these kinds of thorny issues with management, was another disappointment. The prepared remarks were short and sweet and all about numbers. Then CFO Raymond Cook issued a chilling decree: "Please note that during the Q&A section of our call, we will not address customer-specific questions." Translation: Please don't ask us about EMC. Pretty please?

Cook and Moshayedi then stuck to their guns, and analysts didn't press their luck too hard. EMC's name did come up in passing once or twice when discussing general industry trends like automated data storage software. But STEC ended up discussing International Business Machines (NYSE: IBM  ) and Hitachi (NYSE: HIT  ) just as much as EMC, if not more. While those are brand-name customers, they're orders of magnitude smaller than EMC in STEC's world.

So what is it that you're not telling us, STEC? I get this creepy sense of impending doom, though it could just as easily be some huge, game-changing deal coming down the pipeline. Either way, I really expect more transparency out of company leaders and would not be comfortable buying (or short-selling) STEC until these guys change their tune a bit. How can we invest in a business that doesn't want to be understood?

Short and sweet is all right. Sweeping major questions under the rug is not. That's my take, but what's yours? Share your thoughts in the comments below.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.

Read/Post Comments (7) | Recommend This Article (7)

Comments from our Foolish Readers

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  • Report this Comment On August 04, 2010, at 2:02 PM, llcooljc wrote:

    No different than last year when they got the price jacked up on false (or not full) information. I believe there is still a class action suit against them waiting in the wings...

  • Report this Comment On August 04, 2010, at 2:14 PM, mirecek78 wrote:

    Moshayedi brothers? No, thank you very much. I've learnt my lesson already.

  • Report this Comment On August 04, 2010, at 11:05 PM, jrmart wrote:

    STEC can't provide any specifics about business from specific companies because of all the pending lawsuits.

  • Report this Comment On August 05, 2010, at 12:06 AM, curehouse wrote:

    Didn't want to talk about 'The Company' but raised guidance? Hmmm! Selling the unknown never seems to be a bad idea, but I would have to question to much negative logic. Makes me feel like maybe EMC asked them to stay quiet? EMC had a veery good quarter so who knows what is coming down the pipe! STEC may have run a little to much ahead of the earnings and this was simple profit taking. I wouldn't commit new money either but would/will keep an eye open. Could be a good place to be if they execute.

  • Report this Comment On August 09, 2010, at 10:52 AM, jrmart wrote:

    STEC's pending lawsuits came late last year after Manouch Moshayedi talked about the large EMC deal. I don't think the lawyers will ever let him talk about any specific companies at this point in time. Just look at this statement made during the earnings conference call. “I am very pleased with our second quarter results,” CEO Manouch Moshayedi said in a statement. “After a challenging first quarter, we have rebounded quite well and surpassed our revenue and EPS guidance for the second quarter. As anticipated, the inventory carryover situation at our largest customer was resolved during the second quarter. In addition, we are seeing increased interest in the use of SSDs in Enterprise applications and it is very encouraging to see adoption of SSDs increase not only at our largest customers but also across most other Enterprise-storage customers.”

    Based on this I think STEC will blow out the next quarter.

  • Report this Comment On August 10, 2010, at 8:33 PM, frankfinley wrote:

    I don't believe EMC is selling as much SSD as STEC had hoped. Overall their high-end disk storage has been soft and VMax is presenting challenges that inhibit the take-up rate of SSD

  • Report this Comment On August 12, 2010, at 3:53 PM, curehouse wrote:

    Thanks for the thoughts! STEC sure is taking a smeezing right here. I personally have to trade through a couple bad buys but will add into this downturn (slowly). Technically I am seeing good support in the mid 11s and have my eye on a unfilled gap WAY up at 37. If the broader market can get out of the way maybe we can make a good move higher.

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