It's good to be STEC (Nasdaq: STEC) when the business model is working. Chances are pretty decent that the days of engine sputter and backfires are now largely behind the company, judging by last night's earnings report and yesterday's 10% price spike in the shares.

STEC's business model is deceivingly simple:

  • Buy flash memory chips from Samsung, Micron Technology (NYSE: MU), and Qimonda.
  • Design SSD storage modules around those chips.
  • Turn around and sell the modules to storage system builders including EMC (NYSE: EMC), IBM (NYSE: IBM), and the Oracle (Nasdaq: ORCL) subsidiary formerly known as Sun Microsystems.
  • Depend on the systems integrators to market the finished product and raise awareness of STEC's technologies.
  • Profit!

The system backfires when the A-list partners misjudge their inventory needs and order more STEC drives than they can use for the foreseeable future. That's what happened last spring, driving share prices down by 23% overnight on the announcement that EMC was taking a break from its STEC addiction. Everything is now back to normal as EMC once again stood for 52% of STEC's third-quarter revenue, but the difference this time is that the supporting cast around EMC is much larger and hungrier for product. Total sales were still down 12% year over year but 40% stronger than last quarter.

All things considered, it looks like the rough patch EMC laid out in front of STEC and its shareholders is now in the rear-view mirror. I put an outperform call on STEC in my all-star CAPS portfolio back then and haven't regretted it at all. You can follow my lead in just a couple of clicks. The stock has climbed 37% in just a month but has a long way to go before reaching the two-year highs of more than $40 per share set in September 2009, when the EMC partnership was in the fullest of bloom.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. The Fool owns shares of International Business Machines and Oracle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio if you like, and The Motley Fool is investors writing for investors.