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OCZ "back on track", taps more NAND chip suppliers

By Sruthi Ramakrishnan and Sriraj Kalluvila

(Reuters) - Solid-state hard drive maker OCZ Technology Group Inc is sourcing a critical component from multiple vendors after a supply shortage caught it off guard, contributing to a near 60 percent drop in its share price.

"Recently we haven't had any significant NAND supply issues, mostly because we diversified ourselves to multiple suppliers. That was part of the issue before. We were overly reliant on one supplier," Ralph Schmitt, who was named CEO in October after the resignation of co-founder Ryan Petersen, said in an interview.

OCZ shares rose as much as 30 percent to $1.76 on the Nasdaq on Thursday.

The company, known for its Vertex brand, warned in September that it expected second-quarter revenue to be below its prior forecast due to a shortage of NAND chips, used for general storage and data transfer in memory cards and solid-state drives.

The company later said it expected a "significant" loss in its second quarter due to issues in its customer incentive programs, and also delayed filing the results.

Schmitt said a third-party review of OCZ's investigation into customer incentive programs at the heart of the expected loss had taken longer than expected, so it was unclear when the company would report its second-quarter results.

"I wish I knew the answer to that question," Schmitt said, adding that the review may end by next week.

OCZ said last week that it was being investigated by the Securities and Exchange Commission because of the delayed results and had received a subpoena requesting certain documents and information.

The company, which said in October that it had accessed its cash facility, was in talks for additional capital, Schmitt said.

"There is ongoing discussion," he said. "We've plenty of interested parties. I don't think it'll be an issue for us to get cash into the company. It's a question of what the terms look like."

"CRANKING UP THE SPEED"

Schmitt said OCZ had no plans to sell itself but was always open to exploring strategic alternatives.

"(A) sale is a strategic alternative. But right now that's not the direction we are heading towards because we believe the valuation of the company today should be higher even if based on the pure assets of the company," he said.

OCZ's shares spiked in July on reports that larger rival Seagate Technology Plc had made a takeover offer. Micron Technology Group was also said to be interested in the company. [ID:nL4E8IJ45X] Schmitt declined to comment on whether OCZ had received any offers.

The stock fell 57 percent between October 10, when the company issued a profit warning, and Wednesday's close.

OCZ's plan to scrap about 150 mostly lower-end products will help it focus on higher-margin offerings, Schmitt said.

"I cannot think we can compete on price," he said. "The flash guys - the Microns, the Intels, the Samsungs really are the guys that will take that market," he said.

"They can have it as far as I am concerned, as there is no profit to be made there for us," said Schmitt, who joined OCZ's board following the acquisition in 2011 of the UK design team of PLX Technology Inc, where he was CEO.

Lazard Capital Markets analyst Edward Parker said that while the volume SSD market would be dominated by Micron, Intel and Samsung, there were opportunities for companies to compete on a differentiated product basis in the enterprise segment, where there were higher requirements for endurance performance.

"OCZ appears to be aligning their strategy with that way of thinking," he said. His main concern was that the company had yet to prove it could compete on a differentiated basis.

"I don't think there is enough evidence to suggest that they will be able to create products that will be competitive in the more performance enterprise-oriented market."

From now on, Schmitt said, the focus of the company would be profitability and not topline growth alone. OCZ has not made a profit in the last three quarters.

OCZ, which also competes with Fusion-io Inc, SanDisk Corp and STEC Inc, has announced plans to slash its workforce by about 28 percent. As of February 29, the company had about 700 employees.

Charges associated with the closure of the product lines and job cuts will be taken over more than one quarter, Schmitt said.

The simplification of product lines is also helping to push out older inventory. Inventory levels for the quarter ended May 31 totaled $125.8 million, up from $34.6 million a year earlier.

"I'll say that we've got the train back on the track," Schmitt said, referring to an analyst's description of the company as a "train wreck."

"We are cranking up the speed here, moving forward on those tracks," Schmitt said.

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Ted Kerr)

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