Is the market for solid-state drives finally delivering on its promises?

You'd think so after looking at a stock chart for memory-based drive builder STEC (Nasdaq: STEC): The stock has just about doubled in six months. But is the proof truly in the pudding? I'm not so sure.

Fourth-quarter sales fell 11% from the year-ago period, landing at $94 million. That might be OK if STEC were leaving sales on the table to enforce a strict pricing strategy, but gross margin also dwindled from 51% to 45%. In fact, management explained to analysts that lowering prices quarter by quarter is a common practice in the storage industry, and something that STEC's customers insist on doing. The bottom line also compressed from $0.51 of non-GAAP earnings per share to $0.35 per share.

In all fairness, these results beat both analyst expectations and management guidance. But that's more a function of low expectations than terrific business results. STEC isn't really growing, but its margins are shrinking in a long-term kind of way. At the same time, SSD rival SMART Modular Technologies (Nasdaq: SMOD) is growing like dollar weeds, and even traditional hard disk makers Seagate Technologies (Nasdaq: STX) and Western Digital (NYSE: WDC) reported faster growth and stronger margins than STEC did in 2010.

Yet analysts on the earnings call fell all over themselves to congratulate STEC for a great quarter. I feel like I'm missing something. I just ended my "outperform" rating on the stock in CAPS in order to lock in the massive gains of the last six months. I just don't see any signs of further growth, because even these gains seem poorly motivated.

Swing by CAPS to add your own rating right now. The comments box below awaits your reasoning as well.

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