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Five years without a profit, and messy financial fraud allegations spelled the enthusiast firm's demise

After years of takeover rumors, and five years of losing money on an annual basis, Friday marked the end of the road for flashy solid state drive (SSD) drive firm OCZ Technology Group Inc. (OCZ).  Friday was a "black Friday" for OCZ in particular, with stock trades halting after the drivemaker announced that it would be filing for bankruptcy.

The beginning of the end had actual come earlier in the week with an announcement on Wednesday that Hercules Growth Capital Inc. (HTGC) -- a lender to startups and troubled assets -- had been granted permission to take over OCZ accounts at the Silicon Valley Bank and Wells Fargo Bank, National Association.  The takeover was authorized after OCZ defaulted on its loan obligations to Hercules.  Without money to continue operations and unable to find an angel investor, OCZ had no choice but to file for bankruptcy.

I. The Glory Years

Founded in 2002 OCZ began as a memory firm catering primarily to the computer gaming enthusiast market.  The company saw a large growth in sales in the latter half of last decade, as it diversified into power suppliessolid state drives, and coolers.  It even toyed with short-lived graphics card and gaming laptop projects.  At the same time OCZ's physical footprint grew to include satellite offices in The Netherlands, United Kingdom, and Israel, in addition to the company's central headquarters in San Jose, Calif. and a manufacturing and logistics office in Taiwan.

OCZ Logo

In 2006 OCZ went public and was listed on the London Stock Exchange (LSE).  Then in 2009 it migrated to the U.S. stock exchange.  It periodically sold shares several more times to raise additional capital to complete acquisitions and try to grow in the face of loses.

In 2011 after three years of losses, OCZ decided to exit RAM business, focusing its efforts exclusively on solid state drives.  To its fans, the move seemed to produce positive results -- OCZ produced drives with front-of-the-pack performance, including pioneering the emerging market for PCI express SSD products at consumer level price points with its RevoDrive.

And in Q2 2012 OCZ appeared to post a profit.  But that might have been but a mirage.

II. Shareholder Suits, NAND Shortages Sunk OCZ

A bizarre chain of events commenced in calendar Q3 2012 with Seagate Technology plc (STX) reportedly abruptly pulling a potential bid for OCZ after examining its books.  Earnings for the third calendar quarter were revised and OCZ announced it was also auditing its earnings all the way back to 2008 which might have had "errors".

Subsequently CEO Ryan Petersen stepped down and was briefly replaced by chief marketing officer Alex Mei, who was named interim CEO.  In Oct. 2012 Ralph Schmitt was named CEO, and promised to steady the ship.  Around this time OCZ was smacked with a suit from shareholders, who voiced outrage at the financial misrepresentations.  After missing deadlines and risking delisting, OCZ filed its restated earnings for fiscal 2009-2012 (which included parts of calendar quarters in 2008-2012) this October.
OCZ Vector
But 2013 had damaged OCZ in another way.  With mobile demand for NAND chips at all time highs, supply shortages began to occur, which led to OCZ's plan to try to return to profitability -- legitimately this time -- slipping away.

The bankruptcy did not come a surprise to analysts -- particularly after the Wednesday announcement.  Longbow Research analyst Joseph Wittine stated to Reuters, "The filing is not surprising. We had estimated that OCZ had cash for a quarter or so and didn't see any natural buyers.  (We) assumed in any asset sale or capital infusion ... shareholders would be substantially diluted at best and, very possibly, left with nothing."

A small ray of sunshine in OCZ's gloomy Friday was that the drivemaker announced that it had "substantially completed" a deal with Toshiba Corp. (TYO:6502) to sell its solid state drive assets.  Japan's Toshiba, a top NAND chipmaker, is looking to capitalize on the NAND shortage.  It announced earlier this year that it would look to invest $200-300M USD on Flash memory production.

Toshiba NAND
Toshiba has offered to buy up OCZ's SSD business, reportedly.

Toshiba appears keen to follow in the line of Samsung Electronics Comp., Ltd. (KSC:005930) who cut out the middle man and increased its profitability by both manufacturing NAND and selling it consumers in end products, including an enthusiast-aimed SSD lineup.  In many ways Samsung inherited the performance crown from OCZ this year with its 840 Series, which even OCZ executives praised, in our past discussions.  Now perhaps Toshiba will inherit OCZ's legacy and look to challenge the South Korean chipmaker.

Whatever happens, OCZ will be remembered by enthusiasts for pushing the boundaries of performance and lowering costs.

Sources: OCZ, Reuters

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Too bad
By bug77 on 12/2/2013 8:41:00 AM , Rating: 2
I, for one, am sad to see them go. Hopefully Toshiba will keep the existing team in place.

RE: Too bad
By Omega215D on 12/2/2013 9:36:18 AM , Rating: 5
Hopefully PC Power & Cooling will find a good home. It would be a shame to lose a good PSU manufacturer.

RE: Too bad
By Argon18 on 12/2/2013 9:41:01 AM , Rating: 5
Would be nice if PCP&C could be purchased back by its original owners at a firesale price, and if they moved manufacturing back to the USA.

I bought a dozen or more of their power supplies before they were acquired by OCZ, specifically because they were designed and build here in USA. I didn't buy a single one after OCZ closed the US facility, fired all the workers, and outsourced it to the Chinese.

RE: Too bad
By cochy on 12/2/2013 11:19:31 AM , Rating: 2

Definitely a top end brand. Let's hope for the best.

RE: Too bad
By Monkey's Uncle on 12/2/2013 4:05:53 PM , Rating: 2
They were a top end brand.

PCP&C had a real passion for their products prior to their buyout. As soon as the purchase was complete the passion left the building. I for one was really sad to see that happen because their PSUs were the absolute best - bar none.

All OCZ did with the acquisition was to remove the best PSU maker from the competition and carried on marketing their own junk products. For that I don't have much love or sympathy for OCZ's current predicament.

RE: Too bad
By GulWestfale on 12/2/2013 4:53:45 PM , Rating: 1
OCZ always seemed a bit fishy to me. remember that ad where they had a supposedly ugly stand next to a dolled up one, asking "if OCZ can maker this look good, imagine what we could do for your PC?" selling enthusiast products through cheesy sexism.
plus, their actual product quality was always a bit suspect. they always claimed to be a top-end enthusiast brand, but they don't seem to have developed any unique technology at all. they just remarketed OEM stuff from china with their logo on it.
i say good riddance.

RE: Too bad
By Samus on 12/3/2013 3:25:08 AM , Rating: 2
When I lived in San Diego a few years ago, I had an interview at PCP&C at their Carlsbad office (Summer 2009) and I can tell you even a few years after OCZ takeover, they still had the engineering talent and customer service nobody in the industry could touch. In 2010 I mailed in my 750 QUAD to have the cables lengths and connectors customized. $20 bucks, all professionally done.

I'm know PCP&C was eventually affected by the OCZ takeover, and I hope like everybody else that they survive this because if it weren't for OCZ they would have never put their name on some rebadged crap.

The BEST PSU you can buy is a 5 year old used PC Power Silencer that will last forever.

RE: Too bad
By TakinYourPoints on 12/3/2013 1:43:54 AM , Rating: 2
Just get a Seasonic or a rebranded one from Corsair, etc

RE: Too bad
By Monkey's Uncle on 12/3/2013 4:43:29 PM , Rating: 2
Seasonics are my faves as well since OCZ destroyed PCP&C.

You gotta watch though - Corsair sources their PSUs from about 3 primary vendors - Seasonic, ChannelWell and Flextronics. For instance the excellent AX1200i is a rebrand from Flextronics. That doesn't mean it is a bad PSU, rather it is a really, really good one.

RE: Too bad
By TakinYourPoints on 12/4/2013 12:23:59 AM , Rating: 2
Exactly. My Corsair AX760 is a Seasonic, but as you said that varies depending on which model we're talking about. Even the same AX line is a mix from various sources. Fortunately that info is out there and easy to find. :)

Corsair is a good brand in any case, certainly better than OCZ.

RE: Too bad
By dgingerich on 12/2/2013 11:11:04 AM , Rating: 2
I just hope Toshiba doesn't get them. It would be a sad, sad day when unreliable Toshiba gains dominion over Indilinx controllers. It would be a big loss in competition in the SSD arena, and that would drive prices up.

RE: Too bad
By Guspaz on 12/2/2013 12:30:00 PM , Rating: 3
Toshiba has a much better reputation for reliability in the SSD market than OCZ did... not that that's difficult.

RE: Too bad
By dgingerich on 12/2/2013 2:17:44 PM , Rating: 2
Are you sure about that? I have over 500 Toshiba Enterprise SAS 15k 146GB hard drives in my lab in various machines and disk trays, and we have had to replace almost half of them over the last 3 years. That's HUGE for an Enterprise level hard drive. Most Enterprise level hard drives are closer to a .5% failure rate over 3 years, certainly not close to 50%.

Their desktop hard drives have been nearly as bad over the last 3 years. I don't know about their SSDs, though. After my experiences, I'm not seeing them in a positive light.

RE: Too bad
By Guspaz on 12/2/2013 5:53:18 PM , Rating: 2
Data shows that certain models sold by OCZ have also had over 50% failure rates. Their average failure rate isn't nearly so high, obviously, but it's still many times higher than Intel or Samsung.

RE: Too bad
By Samus on 12/3/2013 1:47:32 PM , Rating: 2
I just read Toshiba bought them for $35 million. I hope they don't liquidate their partner companies.

RE: Too bad
By CaedenV on 12/2/2013 12:39:57 PM , Rating: 2
Agreed! OCZ was junk for so long, but the last 2 years or so they really turned the ship arround offering some really good products. I have an OCZ PSU and 2 SSDs in my rig, and another SSD in my wife's box. All great products without any problems. I also bought quite a few PCPnC PSUs over the years, and even after the buyout I never had any issues with them.

The issue is that when you make junk for so long it takes a loooong time to win back the public's trust. It was just too little too late it seems.

Anywho, I think many of us enthusiasts, whether you like OCZ or not, owe them for the dramatic price drops in SSD technology 2 years ago. Those price drops forced just about every other manufacturer to follow suit.

RE: Too bad
By EricMartello on 12/2/2013 9:58:07 PM , Rating: 2
OCZ did do a good job of getting SSDs out on the market at relatively affordable prices, but I don't think the strategy of staking the entire company on SSDs along with duping investors (read about OCZ's sketchy accounting practices) was a recipe for success.

The problem with the computer retail market is that you are not just competing with other retailers - you are competing with manufacturers who sell directly. It's good for the consumer in that it results in lower prices, but it makes running a profitable business tough, if not impossible.

Quality Control
By tanjali on 12/2/2013 9:39:13 AM , Rating: 2
I don’t understand why they didn’t do more on reliability and quality control?
Is that so expensive for firm their size?
At least they would sell itself today for 10 times the worth.

RE: Quality Control
By bug77 on 12/2/2013 9:44:29 AM , Rating: 2
I don't understand why people can't read. There was a widespread issue with Sandforce controllers that affected *everybody* (Intel included, but with their vast resources they developed a fix and kept it secret), not just OCZ. It just happened that OCZ pioneering the new controller line took the brunt of the backlash. Lately, they've been using their own controllers and their drives had no problems at all.
Unfortunately, whether people take their time to read and understand, makes no difference to OCZ now.

RE: Quality Control
By cochy on 12/2/2013 11:21:03 AM , Rating: 2
Didn't OCZ buy Indilinx? They haven't been using Sandforce for quite some time. Unless I'm wrong.

RE: Quality Control
By bug77 on 12/2/2013 3:57:39 PM , Rating: 2
You're right. And that about the time when their troubles have stopped.

RE: Quality Control
By A11 on 12/2/2013 12:10:02 PM , Rating: 2
AFAIK Low quality NAND was what caused OCZ's drives to suffer from reliability issues, not the controller.

RE: Quality Control
By Guspaz on 12/2/2013 12:33:00 PM , Rating: 3
Reports are that they exacerbated the problem.

In a discussion about this on Slashdot, it was pointed out that Sandforce designed their controllers to use supercapacitors to avoid corruption during unexpected power loss. Because many of their customers wanted to produce consumer SSDs with Sandforce controllers that would not use supercapacitors due to cost concerns, Sandforce produced a software workaround to avoid corruption on power loss, at the expense of a write performance hit. Most manufacturers who built the SSDs without supercaps (like Intel) used this solution.

OCZ, on the other hand, decided to build an SSD both without a supercap, but also with the software workaround disabled. End result? Their drives won the benchmarks, but suffered much higher failure rates.

RE: Quality Control
By dgingerich on 12/2/2013 7:09:23 PM , Rating: 2
yeah, and all that to save <$0.35 per drive for the Supercap. It's pitiful.

RE: Quality Control
By CaedenV on 12/2/2013 12:42:36 PM , Rating: 2
sure, everyone had issues... but OCZ had many more than anyone else did due to bad memory, bad voltage control, and generally cheap design. They did fix it before the end, but not fast enough.

RE: Quality Control
By TakinYourPoints on 12/3/2013 1:39:39 AM , Rating: 3
Yup, all this. Excuses are fine but their problems were super consistent. I used one OCZ, and since it and its replacement failed I've been all about Intel, Crucial, and Samsung.

RE: Quality Control
By migel_prado on 12/10/2013 6:49:50 AM , Rating: 2
Older Sandforce controllers had a bit of performance issues, which have been fixed with latest firmware fixes. I have been using Intel 520 for a while now & fairly happy with the overall performance. I think, OCZ & Intel technically function the same as they are embedded with SF-2281 controller & hence if only OCZ has BSOD issues then it implies that the OCZ SSD firmware is not fully compatible with sandforce. Try updating this. This should surely work ;)

By dgingerich on 12/2/2013 11:15:16 AM , Rating: 2
Do any of you old timers remember if OCZ is linked to the older resellers who sold 1GHz Athlons "guaranteed" to overclock to 1.3GHz? I seem to remember one with a similar name. It was too long ago for me to remember the names of companies who did that.

RE: History?
By Guspaz on 12/2/2013 12:35:38 PM , Rating: 2
By the time OCZ was founded, the Athlon was already two generations out of date...

RE: History?
By dgingerich on 12/2/2013 2:04:03 PM , Rating: 2
The manufacturing company, yeah, but the CEO could have owned a reseller before that.

RE: History?
By sorry dog on 12/6/2013 11:00:18 AM , Rating: 2
Good memory there... I had forgotten about the resold overclocked T-Birds... think they had AXXA in the serial. Been so long ago, but I believe that group folded but then name was bought.

Sorry, but don't care enough about OCZ to go look it up to be sure.

By LBID on 12/2/2013 4:04:59 PM , Rating: 4
Good riddance to bad rubbish. From the time that I found out that I was an unpaid six-month beta tester for my Vertex 3, I knew bad times were coming. Then they had the audacity to berate their customers for, get this, complaining about their poor customer service!

I hope they put up a tombstone somewhere for this long-overdue corpse. I have some beer I need to recycle.

RE: Ahahahahahaa!
By JoJoman88 on 12/3/2013 1:44:57 PM , Rating: 3
Never had a problem with their memory products which they got out of. Had a couple of their power supplies(one was total crap) and a Vertex 3 SSD that has had zero problems. That said, sounds like a company that was run poorly and when the problem were exposed they compounded the problem with more untruths, PR and out right trolling of their own customers. All flash/ no substance,like most of the guys running this company.That's what they were all about.

By troysavary on 12/2/2013 3:31:01 AM , Rating: 3
I'd love to pick up a Revodrive, maybe I'll find one cheap.

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