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STEC Inc. Reports Operating Results (10-Q)

August 03, 2010 | About:
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10qk

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STEC Inc. (STEC) filed Quarterly Report for the period ended 2010-06-30.

Stec Inc. has a market cap of $793.8 million; its shares were traded at around $15.65 with a P/E ratio of 12.1 and P/S ratio of 2.2. Stec Inc. had an annual average earning growth of 23.1% over the past 5 years.STEC is in the portfolios of Richard Perry of Perry Capital, Bruce Kovner of Caxton Associates, George Soros of Soros Fund Management LLC, Chuck Royce of Royce& Associates.

Highlight of Business Operations:

Over the past several years, we have expanded our custom design capabilities of Flash products for OEM applications. We have invested significantly in the design and development of customized Flash controllers, firmware and hardware and made strategic acquisitions that have expanded our Flash controller design capabilities and enhanced our capabilities to use third-party controllers. We expect to continue to make investments in Flash custom design capabilities and controller development. Flash product revenue decreased 37% from $76.6 million in the second quarter of 2009 to $48.6 million in the second quarter of 2010. Sales of Flash products represented 79% and 89% of our total revenues in the three months ended June 30, 2010 and June 30, 2009, respectively. An inventory carryover related to sales made to our largest customer during the second half of 2009 negatively impacted our Flash revenues in the first six months of 2010.

We also offer both monolithic DRAM modules and DRAM modules based on our proprietary stacking technology. DRAM product revenue increased 35% from $9.4 million in the second quarter of 2009 to $12.7 million in the second quarter of 2010. Sales of DRAM products represented 21% and 11% of our total revenues in the three months ended June 30, 2010 and June 30, 2009, respectively. The increase in sales of DRAM products in absolute dollars and as a percentage of our total revenues was due primarily to an increase in product sales to a single customer.

Historically, a limited number of customers have accounted for a significant percentage of our revenues. Our ten largest customers accounted for an aggregate of 83.0% of our revenues during the first six months of 2010, compared to 82.3% of our revenues during the first six months of 2009, and 87.7% of our revenues during the second quarter of 2010, compared to 86.8% of our revenues during the second quarter of 2009. We had three customers account for more than 10% of our revenues, at 24.6%, 23.2% and 13.7%, for the six months ended June 30, 2010, compared to four customers, which accounted for more than 10% of our revenues, at 27.5%, 12.5%, 12.0%, and 10.5%, for the same period in 2009. We had three customers account for more than 10% of our revenues, at 37.6%, 18.2% and 12.8% in the second quarter of 2010, compared to four customers, which accounted for more than 10% of our revenues, at 38.9%, 11.8%, 11.8%, and 10.0%, for the same period in 2009. With certain exceptions, sales of our products are generally made through individual purchase orders and, in certain cases, are made under master agreements governing the terms and conditions of the relationships.

Net Revenues. Our revenues were $61.3 million in the second quarter of 2010, compared to $86.4 million in the same period in 2009. Revenues decreased 29% in the second quarter of 2010 due primarily to a 25% decrease in unit shipments of Flash products. The decrease in revenues was due primarily to a 37% decrease in Flash memory sales, partially offset by a 35% increase in sales of DRAM products. Within Flash memory sales, shipments of our Zeus IOPS SSDs into the enterprise-storage market decreased 40% from $57.7 million in the second quarter of 2009 to $34.7 million in the second quarter of 2010. An inventory carryover related to sales made to our largest customer during the second half of 2009 negatively impacted our Flash revenues in the second quarter of 2010. Based on new orders received from this customer, we believe the inventory situation at this customer has now been resolved. In addition, during the second quarter of 2010, this customer elected to discontinue the sales incentive program that we implemented at the beginning of the fourth quarter of 2009. As a result, we reversed the related sales incentive program liability and recognized additional revenue in the amount of $1.3 million in the second quarter of 2010.

Net Revenues. Our revenues were $100.2 million in the first six months of 2010, compared to $149.9 million in the same period in 2009. Revenues decreased 33% in the first six months of 2010 due primarily to a 32% decrease in unit shipments of Flash products. The decrease in revenues was due primarily to a 45% decrease in Flash memory sales, partially offset by a 72% increase in sales of DRAM products. Within Flash memory sales, shipments of our Zeus IOPS SSDs into the enterprise-storage market decreased 46% from $83.3 million in the first six months of 2009 to $45.0 million in the first six months of 2010. An inventory carryover related to sales made to our largest customer during the second half of 2009 negatively impacted our Flash revenues in the first six months of 2010. Based on new orders received from this customer, we believe that the inventory situation at this customer has now been resolved.

On July 30, 2008, we entered into an agreement for a $35 million two-year senior unsecured revolving credit facility (the Credit Facility) with Wachovia Bank, National Association (Wachovia). The Credit Facility bore interest at a floating rate equivalent to, at our option, either (i) LIBOR plus 0.70% - 1.20% depending on our leverage ratio at each quarter end or (ii) Wachovias prime rate, announced from time to time, less 1.00% - 1.50% depending on our leverage ratio at each quarter end. The Credit Facility was guaranteed by certain of our domestic subsidiaries. In addition, in the event we made a loan to any of our foreign subsidiaries, we had agreed to pledge to Wachovia our intercompany

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