A Big Upgrade for STEC

After spending more than a year trapped between a two- and three-star rank, STEC (Nasdaq: STEC  ) has impressed enough top-performing members of our 165,000-strong Motley Fool CAPS community to reach the four-star level. A total of 769 members have given their opinion on the storage device maker, with many offering analysis and commentary to explain their recent optimism.

It's easy to see why more CAPS members are becoming bullish on STEC's future. As solid state drives (SSD) gain more traction in the enterprise space, STEC could expand its footprint in the market.

The company has been fairly quiet on specifics regarding inventory overhang issues with its largest customer, EMC (NYSE: EMC  ) . STEC assured investors that it resolved the situation in the second quarter, and says its other enterprise customers are adopting more of its products.

Speaking of large customers, some CAPS members particularly like STEC's aim to diversify its revenue. The marketing plan it launched earlier this year could help the company gain more business from customers such as Oracle (Nasdaq: ORCL  ) and IBM (NYSE: IBM  ) . Financials are looking better, too: Despite a drop from last year, STEC's second-quarter revenue showed a 58% improvement over the first quarter, and the company forecast a strong third quarter above Wall Street's estimates. 

The SSD market will no doubt face heavier competition as more players seek a piece of the action. Micron (Nasdaq: MU  ) recently shipped its first enterprise-class SSD, while Seagate (Nasdaq: STX  ) unveiled its Pulsar drives last year, and is now teaming up with Samsung to target the enterprise market. Intel (Nasdaq: INTC  ) and Hitachi are even entering the fray, with plans to launch the initial products of their enterprise SSD partnership in the second half of this year.

But since STEC holds a solid competitive position in enterprise SSDs, many CAPS members believe it can grow its market share and remain the industry leader. STEC has more products in development and a balance sheet free of debt, fueling many CAPS members' confidence in its ability to beat the market.  

Do you think STEC deserves its elevated status? Add your thoughts in the comments box below on this page, or head over to CAPS to rate the company and check out all the information and opinions the community offers, absolutely free.

Always looking ahead, the Motley Fool Rule Breakers service is picking the next generation's big winners today. To see what rule-breaking stocks David Gardner is recommending now, take a free 30-day trial.

Fool contributor Dave Mock could use an upgraded toilet bowl brush. He owns shares of Intel, which is an Inside Value pick. The Fool owns shares of and has written puts on Intel. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Oracle. The Fool's disclosure policy is afraid of spiders.


Read/Post Comments (5) | Recommend This Article (6)

Comments from our Foolish Readers

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  • Report this Comment On August 26, 2010, at 12:07 AM, shawn4950 wrote:

    You are kidding right.. do you see where this price per share is?

  • Report this Comment On August 26, 2010, at 10:55 AM, flashfinancials wrote:

    Upgrade? Huh?

    PE of 12 with declining revenue, a large increase in A/R last quarter...the financials are not exactly strong. Stating they show a "are looking better" is like saying the Detroit Lions are looking good because they finally won a game Ok, maybe that is over the edge for an analogy...but honestly, look at their Q1 vs the previous year. Calling Q2 good based on improvement from Q1 is missing the point...look at their first half this year vs. last year. It doesn't paint a picture of growth. This article shies away from any meaningful discussion of the early warning signals coming from their Q1 and Q2 financials...maybe the Lions will win one, but they aren't going to the super bowl anytime soon...

  • Report this Comment On August 27, 2010, at 11:13 AM, jrmart wrote:

    I like to use real info from the experts, not off the cuff comments comparing STEC to the Detroit Lions.

    "SSD demand is on the upswing and Stec is still the only provider of SSDs in the storage market right now," ThinkEquity analyst Rajesh Ghai said.

    Stec's competitor Hitachi Global Storage Technologies may take up to the middle of next year before it comes out with an SSD that it can sell, Ghai said.

    "Even after competitors come, these guys (STEC) are wading fast enough to stay ahead of competition," he said.

    STRONG Q3 OUTLOOK

    For the third-quarter, Stec forecast adjusted earnings of 18 cents to 20 cents, per share, above analysts' average expectation of earnings of 13 cents per share, according to Thomson Reuters.

    It sees revenue of $78 million to $80 million. Wall Street was looking for revenue of $68.8 million for the period.

    For the second quarter, Stec posted a net income of $2.8 million, or 6 cents a share, compared with $19.4 million, or 38 cents a share, last year.

    Excluding special items, Stec earned 9 cents a share and beat estimates of breakeven per share.

    Revenue was $61.3 million, topping expectations of $50.4 million.

    Revenue from sale of Stec's flagship ZeusIOPS solid state drives was $34.7 million, up from $10.4 million in the first quarter, and made up more than half of total quarterly sales.

    The company had three customers who accounted for more than 10 percent of total quarterly revenue, it said on a conference call with analysts.

  • Report this Comment On August 27, 2010, at 6:13 PM, flashfinancials wrote:

    jrmart, thanks for the cut and paste above. What is your estimate for y-on-y sales growth for STEC for 2010? Let's look at their financials...

    I no expert...but me try to do math here:

    2009: 354M revenue

    2010: 39M (Q1) +61M (Q2) + 80M (estimate)

    That gives us 180M for Q1-Q3.

    So for ZERO growth, they need 354-180M = 174M in Q4! Positive growth requires more than 174M. Please find us an article that projects a Q4 anywhere in the range of 174M.

    Wait a minute..that's revenue...let's look at earnings "growth". 2009 earnings were $1.60/share. 2010 earnings are (actual + consensus) 0.46/share. That's a...hmm...NEGATIVE 71% earnings growth rate. Where is the growth story? I am just a silly amateur investor, but it appears to me that they are going in the wrong direction on growth. Someone, anyone...please point out where or how I am misinterpreting their financials.

  • Report this Comment On August 29, 2010, at 11:01 PM, flashfinancials wrote:

    Ok, no responses at all. Maybe it's a busy weekend. Does ANYONE have any comments on STEC's negative revenue and earnings growth rates for 2010...someone tell us why we should ignore this in valueing a "growth" stock. I am baffled why their isn't more caution in people's assessment of STEC, am I completely misreading their 2010 financials?

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