OCZ warns of significant quarterly loss, shares slide

Wed Oct 10, 2012 12:36pm EDT

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(Reuters) - Solid-state hard drive maker OCZ Technology Group Inc OCZ.O said problems in its customer incentive program would result in a "significant" quarterly loss, sending its shares down 42 percent.

OCZ also named a board member, Ralph Schmitt, as its new CEO and said revenue for the three months to August 31 would be "materially lower" due to the unspecified problems.

"We are here to generate value for shareholders and we've failed at that mission," Schmitt, until now the CEO of chipmaker PLX Technology Inc PLXT.O, told analysts on a conference call.

"We've lost credibility but we'll gain it back with consistent execution that will achieve effective results."

The customer incentive programs, which include rebates and price adjustments, will continue, Schmitt said, but they have been redesigned to achieve better results.

The latest issue at OCZ follows a string of quarterly earnings below expectations, which had already helped drive down the value of its shares by two-thirds since early February.

"OCZ has turned into a train wreck, to put it succinctly," Benchmark Co analyst Gary Mobley wrote in a note.

The prior CEO tried to gain market share by boosting incentive programs and lost sight of how this would impact second-quarter revenue, Mobley said.

OCZ's previous CEO, co-founder Ryan Petersen, resigned last month. Schmitt, whose previous company, PLX, is being sold, has been an OCZ board member since April 2011.

The company, which counts privately held electronics distributor Memoryworld Gmbh & Co and online computer retailer NewEgg as its biggest customers, said it also expects to report negative gross margins for the second quarter.

Revenue will be lower but cost of goods sold would still be in line with what it would have been had the company recognized the previously forecast revenue, resulting in negative gross margins, Piper Jaffray analyst Andrew Nowinski told Reuters.

"Going forward, it is fair to assume that the gross margin will return to the old range because the rebate issue is fixed," he said.

OCZ was scheduled to report second-quarter results on Wednesday but said its financial statements were still under review. However, there are no indications yet that the results will have to be restated, the company said.

Schmitt said the company's cash position had declined and it had accessed a credit facility but he declined to give further details.

OCZ last month cut its revenue forecast for the second quarter to between $110 million and $120 million because of its supply chain problems. It had earlier forecast between $130 million and $140 million.

It blamed supply chain issues for its previous woes but analysts have questioned its strategy of not locking in long-term contracts with parts suppliers, unlike rivals such as Fusion-io FIO.N and Stec Inc STEC.O.

Shares of the San Jose, California-based company fell 42 percent to a two-year low of $1.80 on heavy volumes on the Nasdaq, before recovering a little to $1.90.

(Additional reporting by Supantha Mukherjee; Editing by Rodney Joyce)

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