(By Balachander) OCZ Technology Group Inc. (NASDAQ:OCZ) shares were downgraded to "Underperform" from "Sector Perform" by FBN Securities, after the data-storage company reduced second-quarter revenue outlook due to constraints in NAND flash supply.
The brokerage also lowered price target on the stock to $4 from $6.
Shebly Seyrafi, an analyst at FBN is of the view that OCZ has been struggling with weaker-than-expected demand over the last few quarters that led to a deterioration in its balance sheet, and now this deterioration is manifesting itself in much weaker-than-expected revenue.
Compounding its near-term difficulties is its relatively high exposure to Europe (46 percent revenue), the analyst said and added that the recent announcement of the retirement of CFO Arthur Knapp (after a replacement is found) is also not encouraging.
"With conditions expected to remain challenging in the current FQ3/Nov. quarter, and with the company's admission that it will likely tap its line of credit ($40M), there is even more reason to reduce positions," Seyrafi wrote in a note.
The analyst wrote that the key risk to this downgrade is that with a lower stock price, its shares would be even more attractive to possible suitors such as STX.
"Another risk to this call is that the company may be able to raise prices to account for its NAND supply constraints, and that overall GMs will benefit more than otherwise," Seyrafi wrote. "However, with the company now expected to lose $.38 (our estimate) this year and with downside risk to our $.30 estimate next year, we think that investors should reduce their positions in this equity."
The San Jose, California-based maker of solid-state drives (SSDs) currently forecasts revenue to be $110 to 120 million for the second quarter, down from $130 to $140 million projected earlier. The company posted revenue of $113.6 in the first quarter and $78.5 million for the second quarter of last year.
On Thursday, shares tumbled 25 percent to trade at $4.02. In the 52-week period, the stock has been trading between $3.90 and $10.05.