In a recent announcement, OCZ Technology Inc. has stated that they would be shifting their focus away from low margin memory products and focusing more heavily on higher-margin high-performance and specialty memory products. OCZ has been showing a steady shift towards a more SSD [Solid State Drive] heavy product lineup as they foresee SSDs becoming a very big market in the future, not that it isn?t already.
OCZ?s previous investments include $20 Million in additional funding on top of their initial IPO to support the research and development of new Solid State technologies. As the shift occurs, OCZ has shifted their revenue guidance downward by $35M to a range of $165 to $180 Million. This initially risky move may, in the end, prove to reduce their overall return rate on products and likely improve their gross margins significantly. From taking a quick glance at OCZ’s financials, we can see that they have been struggling to be profitable and achieve positive margins. The removal of this segment their DRAM business will in the short term reduce their revenue but have an immediate effect on their margins if the ceteris paribus assumption is applied.
One of our interests is how OCZ will handle their power supply business. Since they are putting such a focus on high margins, we wonder how it will affect the future of their power supply business specifically pertaining to their acquisition of PC Power & Cooling but only a few years ago. Many times there have been rumors about OCZ trying to offload the division, but those rumors have been debunked by many inside OCZ. When we see a company like OCZ shifting so heavily towards a niche market such as high-performance products, we are always concerned to see how they handle the rest of their business segments. We?re just worried that OCZ will in the end just become a gigantic SSD manufacturer and nothing else. Because of this, in the future their profitability may be more affected by NAND Flash prices rather than DRAM prices which have been known to be extremely volatile and caused many manufacturers to go under.
It could be a stabilizing move, or it could be a huge gamble that may not be at the right time. Time will tell.