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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