One of the best ways to get a good idea about a company you are tracking is by putting it through a SWOT analysis. Late last month, solid state drive maker STEC (Nasdaq: STEC ) reported its fourth-quarter results. Being a player in the booming SSD space, STEC deserves a look-see before an investment is made.
- A fast mover: STEC ranks high among SSD makers and intends to capitalize on this advantage. The company keeps pushing forth its product development capacities and delivers efficient products, which will probably help it gain more market share.
- Research and development: Innovation is a very important aspect of this industry. And STEC has been pretty active on that front, with its R&D investments going up some 25% in the previous quarter.
- Strategic moves: In order to complement its product development moves, STEC acquired India-based software company KQ Infotech last year. This will probably help the company add to its intellectual capital, along with addition of software capabilities to its hardware business.
- Losing momentum: It seems that the company has lost some steam over the past year. Its revenue has been on a downhill course for the past four quarters, as STEC has been losing out on customers who have gone in for cheaper options.
- Dropping margins: STEC has kept its gross margin pretty much around the 45% mark in the last few quarters. But it dropped to 41% in the previous quarter because of low sales, which resulted in lower revenue. This is in contrast to rival OCZ Technology, which saw an opposite trend last quarter, with revenue jumping and margins improving.
- SSD on a roll: As I mentioned before, STEC plies its trade in the fast-growing SSD market. This will give the company enough room for development, as this market is expected to grow 51% annually over the coming four years.
- Data centers: With the advent of cloud computing, the requirement for data centers has gone up. Data centers hold large amounts of data routed to them through the cloud platform. Cloud computing is expected to grow at an annual rate of 39% over the next four years, and SSDs present the most cost-efficient solution to store such data. This will give STEC another area for flexing its muscles.
- Better technology: Just as SSDs have posed a major challenge for the hard disk drives (HDD), the thin hard drive from Seagate can do the same to SSDs. The drive can substitute for SSDs in mobile devices, such as tablets and notebooks, and can possibly throw a spanner into SSDs' prospects.
- Still costly: SSDs have yet to reach a competitive cost level when compared to HDDs, costing a whopping 25 times more. PCs using HDDs still sell in emerging markets. Thus SSDs need to become more cost-effective if they are to substitute for HDDs and gain adoption over a wider scope.
The Foolish takeaway
The industry is doing well, but the same cannot be said of STEC at the moment. It needs to overcome its weaknesses in order to script a successful growth story. As a result, it makes sense to keep track of the company's progress by adding it to your Watchlist, so that you don't miss out when the turnaround begins.