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OCZ Technology Group Inc. (OCZ)

F2Q11 (Qtr End 08/31/2010) Earnings Call

October 11, 2010 1:00 pm ET

Executives

Ryan Petersen - CEO

Arthur Knapp - CFO

Analysts

Alex Kurtz - Merriman and Company

Rich Kugele - Needham and Company

Presentation

Operator

Good afternoon and welcome to the OCZ Technology Group's fiscal 2011 second quarter financial results conference call. (Operator Instructions)

On the call today from OCZ are Ryan Petersen, CEO; and Arthur Knapp, CFO. Ryan will provide a company overview. Art will review the firm's financial results. Following that, we will open the floor to a few questions.

Before I turn the call over to them, I need to remind our listeners that remarks made during this call may contain forward-looking statements that involve risks and uncertainties. Forward-looking statements on this call are made pursuant to the Safe Harbor provisions of the federal securities laws. Information contained in the forward-looking statements is based on current expectations and is subject to change, and actual results may differ materially from those forward-looking statements. Some of the factors that could cause actual results to differ are discussed in the reports filed with the SEC. These documents are available on OCZ's website, www.ocztechnology.com.

With that said, it is now my pleasure to introduce Ryan Petersen.

Ryan Petersen

Thanks and good day to everybody. As you know from our prior two earnings calls, we are in the midst of a strategic transformation away from our historical DRAM memory module products and into the rapidly expanding market for solid-state drives.

In late August, we announced that we were discontinuing the sale of certain commodity-level DRAM products, and this change has allowed us to focus on building our position in the high-performance SSD market. These products are used commonly in enterprise storage arrays and servers as well as consumer and industrial applications.

During the quarter, SSDs represented nearly 70% of our ongoing business and achieved record results with sales of $20.2 million, up 81% year-over-year and 51% sequentially.

At a detailed level, it's important to note that August was not only a record month for OCZ with respect to net revenue, but SSD unit volumes in August were more than triple the average SSD unit volumes during Q1. To be clear, it will not be a practice at OCZ to discuss monthly performance metrics going forward. That said, in this particular instance, we feel that it's helpful conveying the growth in our SSD product lines.

I'd like to take a few minutes to speak more specifically about our various SSD products and their respective markets. Our SSD products are now gaining traction in the enterprise space as enterprise-class products now comprise nearly 20% of our SSD sales compared to only a percent or two a year ago. High-performance and server SSD sales were approximately 75% of our SSD revenue, and consumer grade SSDs continue to be around 5% of our revenue.

During the quarter, we announced that our enterprise-class standard MLC products have been selected by SGI for use across SGI and Rackable product lines. We expect our sales to SGI to ramp to production levels during our fiscal second half.

In addition, we have commenced shipments of our standard MLC SAS and SATA Deneva products to several new enterprise and server OEMs during the quarter, and we expect our enterprise and server OEM business for standard MLC products will continue to ramp.

During the quarter, we commenced mass production shipments of our Deneva Series eMLC-based drives to our current OEM clients and have received evaluation orders from two major OEMs as well as a number of other new OEM clients. We expect the eMLC and eMLC-wide technology will be disruptive to SLC across application categories in enterprise storage segments due primarily to the lower costs and enhanced durability provided by this technology.

Our High Speed Data Link interface and IBIS series of High Speed Data Link-equipped SSDs were launched during the quarter. The HSDL interface currently operates at more than double the speed of fiber channel and SAS interfaces. And next-generation HSDL devices are expected to scale well beyond that of any known future storage interface.

We expect to begin shipping our IBIS drives, which feature 125,000 random write IOPS at a $3 per gigabyte price point versus about $5 per gigabyte for similar performing drives to selected partners late in the third quarter.

On the PCI-E front, our award-winning RevoDrive entered mass production during the quarter. And while it was launched primarily as a solution for high-performance prosumer type desktop PC applications such as video and audio editing, it has seen substantially higher than expected adoption in the server and workstation market, which drove demand in excess of supply during the quarter. We intend to move aggressively to capitalize on these trends, and we're in plan to increase the supply for RevoDrive SSDs in the third quarter.

Due to the continued advancement of SSD technology, we believe that SSDs are now the most important component in the enterprise and server storage offerings. Both premium performance and unmatched reliability are critical. The value proposition offered by SSDs is getting more compelling over time, and that is the key reason why industry analysts project a traffic growth.

To briefly cover our other products, demand for our continuing DRAM module products continues to be strong and our PSU products have benefited from strong demand despite industry-wide capacitor shortages that limited our PSU sales during the quarter.

Read the rest of this transcript for free on seekingalpha.com