Stec's top shareholder pushes for CEO resignation

Thu Mar 14, 2013 6:43pm EDT

(Reuters) - Stec Inc STEC.O reported a bigger-than-expected loss on Thursday due to increased competition, and the company's top shareholder pushed for the chief executive's resignation, sending its shares down 12 percent after the bell.

Shareholders Balch Hill LLC and Potomac Capital Management LLC, who had in January nominated seven candidates to replace the entire Stec board, said on Thursday co-founders Mark Moshayedi and Manouch Moshayedi should resign from the company's board.

Stec's Chief Executive Manouch Moshayedi resigned in September over insider trading charges, in a bid to isolate the company from liabilities arising out of the lawsuit. His brother Mark Moshayedi took over as interim CEO.

"Mark Moshayedi could not rebuild that trust because he is too closely aligned with his brother Manouch, and that we believe the company's continued underperformance clearly indicates that both Mark and Manouch Moshayedi should resign from the company's Board of Directors," Balach Hill wrote in a letter to Stec's shareholders.

Once a leader in the flash drive storage industry, Stec's sales have plunged over the last couple of years as larger rivals such as Western Digital Corp WDC.N and Seagate Plc (STX.O) eat into its market share.

Balch Hill Capital had in December expressed "serious concerns" about the company's strategic direction and asked it to consider selling itself to a larger industry player.

Balch, which holds 9 percent of Stec, had nominated a slate of seven directors to replace Stec's board, of which the company agreed to interview four.

LOSS WIDENS

Fourth-quarter net loss widened to $23.2 million, or 50 cents per share, from $3.6 million, or 8 cents per share, a year earlier. Revenue fell 40 percent to $35.1 million.

Excluding items, the company reported a loss of 35 cents per share.

Analysts on average had expected a loss of 32 cents per share on revenue of $37.8 million, according to Thomson Reuters I/B/E/S.

The company has not posted a profit in the last four quarters.

"Stec's original equipment manufacturer base is deteriorating faster than expected," Craig-Hallum Capital analyst Richard Shannon said.

Stec's revenue fell last year as two of its biggest customers, EMC Corp (EMC.N) and IBM (IBM.N), opted for cheaper alternatives. The company also signed on Taiwanese company Mitac, which accounted for 17 percent of revenue in 2012.

Stec forecast first-quarter adjusted loss of 40 cents to 42 cents per share on revenue of $21 million to $23 million.

Analysts on average were expecting a loss of 32 cents per share on revenue of $38.8 million.

Shares of the company fell 12 percent to $4.81 after the bell. They closed at $5.49 on the Nasdaq on Thursday.

(Reporting by Neha Alawadhi in Bangalore; Editing by Supriya Kurane)