OCZ's Pain Is Micron's Gain

The iPhone 5 launch on Wednesday, Sept. 12 is sure to be the most important event for tech investors this year. The Motley Fool will be hosting a live chat where our top tech analysts will answer your questions and break down what the announcement means for Apple and tech investors everywhere. Be sure to swing by at 12:45 p.m. EDT next Wednesday for all your coverage of Apple's next big announcement.

Call it a collateral benefit: Solid-state drive specialist OCZ Technology (Nasdaq: OCZ  ) just reshaped a neighboring industry.

The company just pre-announced its second-quarter revenue. Landing somewhere between $110 million and $120 million, the top-line haul will come in about 15% below management's guidance. Analysts toed the management line in every way, so investors are running for the exits today: OCZ plunged as far as 30% overnight.

But that's only half the story. You see, OCZ insists that demand for its ultra-fast storage products remains very high. The problem lies in tight supplies of the NAND flash memory chips that make OCZ's drives work.

"During the month of August we experienced a significant shortage on certain NAND flash components, based on industrywide tightening of supply," said CEO Ryan Petersen. Hence, OCZ is left with large backorders due to undersupply of crucial memory chips.

What it all means
That's bad news for OCZ, which is left up the creek without a component paddle. The company may leave money on the table if it can't fill existing orders in a timely manner, and this incident could also inspire potential customers to look elsewhere the next time they need large shipments of SSD devices.

But on the flip side, the tight chip supply is totally awesome for the memory chip makers. That's why shares of Micron Technology (Nasdaq: MU  ) and SanDisk (Nasdaq: SNDK  ) jumped more than 8% on OCZ's news. The industry has been plagued by oversupply in recent months. Leading chip makers have been slashing their manufacturing output in an effort to stop unit prices from falling through the floor.

In its latest earnings call, Micron stood shoulder-to-shoulder with its chip-making rivals on that battle line: "We're with our industry peers right now in that we're not really excited to add a lot of capacity either," said Glen Hawk, president of Micron's NAND division. "And [that's] going to remain so for some time but as this long-term demand in these new applications kick in, you bet things are going to tighten up once again. And I think that's going to lead to a different dynamic that will favor the NAND suppliers who are manufacturing their own SSDs."

So now that OCZ sent up a signal flare that shows strong demand meeting tight supplies, NAND prices should stabilize or maybe even climb for a while. OCZ doesn't make its own memory chips, but both SanDisk and Micron sell chips, as well as SSD drives.

Will OCZ recover from this miss?
OCZ's future will depend on the company locking up some long-term supply contracts. Needham analyst Richard Kugele downgraded that stock to a hold, explaining that "The perception of inconsistent execution on guidance and supply chain management continues to mar what otherwise would be a major success story, in our view."

I couldn't have said it better myself. That inconsistency is a large part of why I own Micron in my real-world portfolio but only have a bullish CAPScall on OCZ. And even that stamp of approval will get licked soon unless OCZ can tighten up its inconsistent operations.

Flash chips are essential to the SSD revolution in data storage, but there's another industry that's sucking up most of the available chip supply. I'm talking about the mobile computing explosion, as every single smartphone and tablet comes equipped with flash-based storage systems. To learn more about this game-changing market revolution, including the name of the one company best positioned to benefit from this explosive growth, you should check out this special report on the Next Trillion-Dollar Revolution. It's free today, but might be gone tomorrow, so grab your copy right now!

Fool contributor Anders Bylund owns shares in Micron but holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Apple. Motley Fool newsletter services recommend Apple. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 07, 2012, at 1:20 PM, garifolle wrote:

    The excitement with Micron (MU) might have been premature.

    Their problems with Elpida Bondholders are not over yet, and Elpida will be a heavy burden if the economy does not improve.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2009427, ~/Articles/ArticleHandler.aspx, 5/27/2016 12:58:23 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 3 hours ago Sponsored by:
DOW 17,828.29 -23.22 -0.13%
S&P 500 2,090.10 -0.44 -0.02%
NASD 4,901.77 6.88 0.14%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/26/2016 4:00 PM
MU $11.95 Up +0.35 +3.02%
Micron Technology,… CAPS Rating: ***
OCZ $0.00 Down +0.00 +0.00%
OCZ Technology Gro… CAPS Rating: **
SNDK $0.00 Down +0.00 +0.00%
SanDisk Corp CAPS Rating: ***