Shares of flash memory storage solutions provider STEC Inc. (STEC) plunged around 32% in the after-hours trading on Tuesday, after the company warned in its third-quarter results that one of its customers would carry 2009 inventory into 2010 that might impact its first quarter 2010. In its third quarter, the Santa Ana, California-based company reported a significant growth in profit, boosted by strong revenues. STEC also issued fourth-quarter forecast.
As per reports, Manouch Moshayedi, STEC's Chairman and Chief Executive Officer, in the earnings conference call, identified the customer as EMC Corp. (EMC), which accounts for 90% of the company's Zeus IOPS SSD business, and also said that sales of the Zeus line in the third quarter were $60.7 million.
Third-quarter net income was $24.48 million or $0.47 per share, compared to $1.204 million or $0.02 per share in the prior year quarter.
On a continuing operations basis, excluding prior year's discontinued operations, third-quarter income of $24.48 million or $0.47 per share climbed from $1.157 million or $0.02 per share last year.
Excluding certain one-time items, non-GAAP income from continuing operations was $25.97 million or $0.50 per share, compared to $4.94 million or $0.10 per share in the previous year quarter.
On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $0.47 per share for the quarter. Analysts' estimates typically exclude special items.
Net revenues for the third quarter surged 54.3% to $98.29 million from $63.65 million in the third quarter of 2008, and beat thirteen Wall Street analysts' consensus estimate of $96.58 million.
GAAP gross profit margin was 49.7% for the third quarter of 2009, compared to 32.1% last year, and non-GAAP gross profit margin grew to 49.8% from prior year's 34.1%.
Commenting on the results, Moshayedi stated, "I am very pleased to share with you, our exceptional results for the third quarter of 2009. Our solid operating results, the strengthening of our balance sheet and the further integration of our SSDs into our customers' platforms leave us in a great position to address the growth opportunities and challenges that lie ahead. Despite a sluggish economy, we believe our growth through the end of the year will continue."
For the nine months of fiscal 2009, STEC's net income surged to $46.82 million or $0.92 per share from $4.46 million or $0.09 per share in the previous year. Income from continuing operations went up to $47.04 million or $0.93 per share from $4.33 million or $0.09 per share a year ago. Nine-month net revenues totaled $248.18 million, higher than last year's $170.53 million.
Looking ahead, for the fourth quarter of 2009, STEC said it expects non-GAAP earnings between $0.51 and $0.53 per share, and revenue between $101 million and $103 million, net of $2.4 million of estimated reserves related to sales and marketing incentive programs. Street estimates earnings of $0.52 per share for the quarter, with estimates ranging between $0.49 and $0.59 per share, on revenues of $105.98 million for the quarter.
Regarding the inventory, Moshayedi said, "One of our customers entered into a $120 million supply agreement with us for shipments covering the second half of 2009. We recently received preliminary indications that our customer might carry inventory of our ZeusIOPS at the end of 2009 which they will use in 2010. In light of this development, we have jointly initiated a strategic sales and marketing incentive program designed to promote the integration of STEC's SSDs into their systems. As of September 30, 2009, we have accrued $1.5 million of estimated costs for this marketing incentive program."
He added, "Both companies believe that we will be successful in increasing the pace of the replacement of HDDs with SSDs. If our marketing program is not successful in increasing the demand flow of SSDs, our first quarter of 2010 orders from this customer will be negatively affected; however, the actual impact cannot be quantified at this time."
STEC closed Tuesday's regular trading session at $23.15, up $1.59 or 7.37%, on a volume of 12.01 million shares, against a 3-month average volume of 4.95 million shares. However, in the after-hours trading, shares plunged $7.39 or 31.92% to close at $15.76.
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