Is OCZ on its last legs?

One of the first commercial SSD drive makers has burned through cash, its stock collapsed, and now so have sales.

It's never an encouraging sign when a company whose product you use is in trouble, but it happens to all of us. This week came the latest evidence that SSD maker OCZ Technologies is in serious trouble as its sales have collapsed.

For its second fiscal quarter ended August 31, 2013, revenue was $33.5 million, a huge drop compared to revenue of $55.3 million for the first quarter of 2013 and revenue of $88.6 million for the second quarter of 2012. The net loss for this quarter was massive, $26 million, a doubling of the $13.1 million loss in the same quarter last year.

"Revenue and gross margins declined in the second quarter as revenue for our client SSD products continued to be impacted by our challenges in procuring flash. Revenue from our enterprise solutions accounted for roughly half of our SSD revenue, compared to about 60% in the first quarter, as a major data center customer completed its installation during the quarter. This has been a difficult quarter as demand for our products continues to be greater than our ability to supply, given our capital constraints," said Ralph Schmitt, CEO of OCZ Technology in a statement announcing the numbers.

This has been a common refrain. OCZ reports lower sales, it blames a shortage of NAND. Yet I hear no such complaining from its competition. The price of NAND is going up, there's no denying that, but the shortage that some have predicted was supposed to be now, not for the last year.

OCZ's competitor are diversified companies with many product lines, while OCZ makes just SSD drives, so it doesn't have a more profitable product line on which to fall back. But it's also a matter of management. OCZ has had a tremendous cash burn rate. Even though it raised more than $200 million in cash from their IPO and other offerings, they have burned through it all.

The company has just $10 million in the bank, and that's after taking out a $30 million loan from Hercules Technology Growth Capital with what one writer on Seeking Alpha writer called "loanshark-like terms." The interest rate is higher than 15%, and if OCZ can't pay it back, then Hercules gets the entire company for $30 million, because OCZ put itself up as collateral.

Schmitt said the company's break-even point was about $110 million. The company just reported $33 million in revenue last quarter. The math is not in OCZ's favor. Plus it's being sued by investors over its past accounting practices, which some felt hid how much money it was losing.

It's a shame because I own their products and love them. My main system is powered by a 512GB Vertex 4 (yeah, that cost a pretty penny) and my backup system is running a 256GB Agility 3. They are excellent drives that never, ever give me problems. I would recommend them to anyone.

Well, you might want to wait and see how things shake out now.

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