OCZ Technology May Be an Acquisition Target for Micron or Seagate [UPDATED]

Micron or Seagate May Take Over OCZ Technology

by Anton Shilov
07/19/2012 | 11:26 PM

 

UPDATE: Adding OCZ CFO and CEO comment regarding cash and future product deployments situations.

OCZ Technology Group, a leading manufacturer of solid-state drives for consumers and enterprises, may be an acquisition target for Micron Technology and Seagate Technology, a market rumour claims. There may be circumstances under which OCZ might be acquired, but at present OCZ is just growing fast to be a tempting takever target.

The rumour about incoming buyout by Seagate, the world's largest maker of hard drives, was first published by Fudzilla web-site and then republished by Reuters news-agency. Both sources cited market analysts, who noted challenging situation with cash at OCZ, which in the past caused inabilities to supply products in volume. Micron Technology, a leading maker of NAND flash memory used on SSDs, is also named as a company interested in OCZ.

"I'm hearing the same rumors. I can only say that after the last quarter, when OCZ's cash situation became more challenging, they would be more willing to enter into a deal," said Shebly Seyrafi, an analyst with FBN Securities.


What should be noted is that OCZ just announced in their financial conference that they landed numerous contracts with Microsoft.

Seagate is clearly late to market of solid-state drives and will potentially need a partner who has a wide family of various solid-state drives. In fact, there are not a lot of such companies on the market nowadays; it may be easily said that OCZ is a unique company in a unique position. What should be kept in mind is that Seagate and Western Digital own a huge portfolio of patents on various storage technologies. Potentially, both can sue SSD makers or attempt an unfriendly takeover.

Micron has its own family of SSDs for consumers and enterprises and also owns Crucial, a retail supplier of DRAM- and NAND flash-based products for consumers. Moreover, OCZ is one of Micron's largest customers and therefore a rather natural fit, considering the fact that OCZ is stonge in enterprise type of storage. On the other hand, Micron is about to acquire Elpida Memory and Rexchip Semiconductor, which will slowdown its abilities to absorb other companies.

One thing that should be remembered is how fast OCZ Technology is growing these days: 54% revenue increase year-on-year was registered in Q1 of fiscal 2013. OCZ expects net revenue for its fiscal year ending February 28, 2013 (FY 2013) to be in the range of $630 to $700 million, which represents a growth rate of approximately 80% at the midpoint. Just recently OCZ started to ship solid-state drives for use in datacenters owned by a major software company, according to sources. Even in case OCZ runs into cash problems, which is natural for a so rapidly growing company, this is generally considered as normal and the company has opportunities to borrow cash it needs.

In fact, OCZ did admit it had challenging situation with cash during the last conference call (which transcript is available at SeekingAlpha web-site)

"The expected ramp in the second half, the working capital cycle will probably require us to dip into the bank line but then it becomes cash flow positive in Q4 [meaning that OCZ sees no crisis just now, but expects the cash back in Q4 - X-bit labs]. It is that is typical cycle, any time you have a spike in sales, it is going to put pressure on the working capital model. So that is why we do have the bank line in place," said Arthur Knapp, chief financial officer of OCZ.

Besides, during the same conference call Ryan Petersen, the chief executive officer of OCZ, confirmed that Microsoft Corp. is about to start deploying OCZ SSDs in Serial ATA, Setial Attached SCSI (SAD) and PCI Express form-factor  into different applications.

"In regards to significant customer news, I'd like to confirm that we are expecting Microsoft deployments across a number of discrete opportunities around our Deneva 2 SATA products, our Talos SAS drives and our Z-Drive R4 PCIe SSD. And this could be material to our business in the near-term and we believe that Microsoft could grow to become one of our most significant clients," said Mr. Petersen.

 

Shares of OCZ, which was valued at $308 million as of Wednesday's close, were trading up 22% at $5.57 on the Nasdaq. Thursday's gains added about $68 million to its market capitalization.

OCZ said that it does not comment on market rumors.