A few days back I had written about OCZ Technology's (Nasdaq: OCZ ) strong performance in the third quarter and told you why the stock looks like a long term buy. Now, a SWOT analysis will give you a clear picture of some important things you need to know about the company before you make an investment.
- Creating barriers to entry: OCZ Technology is looking to keep competition under control by creating barriers to entry in a fast growing SSD market. As a result, the company has been expanding its product portfolio continuously, which is helping it stay ahead of its peers.
- Strong R&D: OCZ is multiplying its engineering team rapidly as it looks to maintain the product development advantage which it currently has. To further supplement its R&D moves, OCZ made a few strategic acquisitions such as those of Solid Data Systems, Indilinx, and SANRAD, and these will add fuel to the company's product portfolio.
- Strategic partnerships: The company's chips have got a thumbs up from Intel for use in the much anticipated Ultrabooks and have already found their way inside the Ultrabook variant of LG Electronics.
- Mind the cash: Although the company has seen solid growth in revenue, it has failed to generate positive cash from operations in the last five years, and the figure goes deeper into the red every quarter. Even though it has a credit facility with Wells Fargo, I believe positive cash will really matter if OCZ wishes to continue its growth story in the long run.
- Inventory overflow: OCZ's inventory has grown an astounding 372% from the year-ago period. This is certainly a matter of concern as revenues grew only 94% in comparison with the mammoth inventory jump.
- Margin woes: OCZ sports a much lower gross margin of 22% as compared with its primary rival STEC, which has a margin of almost 50%. So, OCZ needs to pull up its socks by introducing stringent cost control measures and streamlining inventories to attain industry standards.
- SSD market shining: The market for SSDs is growing tremendously. Analysts expect 51% annual growth in shipments over the next four years as mobile computing devices, in which SSDs are used, are finding greater acceptance among consumers.
- Growth in cloud computing: SSDs provide the most cost-effective solution to data centers which form the base for a booming cloud computing platform. This relatively new arena in computing is expected to grow at a supersonic rate of 39% annually over the next four years, giving OCZ more room for growth.
- Cost disadvantage vs. hard disk drives (HDD): Even though SSDs are catching on, they are still a costlier storage option as compared with HDDs. Cost of storage on SSDs is significantly more than HDDs which are still in high demand in emerging markets due to high PC sales. The storage cost needs to come down dramatically if SSDs are to find acceptability over a broader horizon.
- Thin hard-disk drives: One serious threat to the SSD growth story is Seagate's thin hard drive. These thin HDDs have the capability of replacing SSDs in notebooks and tablets, and as such could mount a grave challenge in future.
The Foolish takeaway
On the whole, things are on the brighter side for OCZ Technology. There are a few uncertain areas associated with it but you will find them in almost every stock you look at. Also, with its cutting edge technology and bright business prospects, I believe that OCZ is a stock capable of performing well in the long run.
And in case you wish to keep track of the company's progress, you can add it to your free watchlist.