Solid-state drive maker and computer components manufacturer OCZ Technology (Nasdaq: OCZ - News) toppled analysts' revenue estimates in the third quarter and provided an upbeat outlook for the ongoing one. At this juncture, it makes sense to check what OCZ did right, and how it might fare going forward.
The quarter in brief
Revenue for the quarter jumped an astounding 94% to $103 million from the year-ago period on the back of a 130% rise in sales of SSDs (which comprise more than 90% of its business). The bump in revenue was backed by controlled production costs, and this helped OCZ improve its gross margin to 22% in the quarter from 17% last year.
Selling, general, and administrative expenses grew some 38% to $13.8 million due to an increase in shipping expenses on higher sales volume. OCZ's investment toward developing a strong sales network also contributed to the rising SG&A expenses. However, the rise in costs was covered up pretty well by the jump in revenues, and the company managed to trim its losses to just under a million from $8 million deficit last year.
Strategic moves
The rising demand for SSDs helped the company post record revenue in the quarter and set the stage nicely for the future. OCZ is doing its part and making some notable moves in order to get the most out of the market.
The company has tripled its research and development spending as it focuses toward innovating better products. OCZ has expanded its engineering team and has made a few acquisitions -- including Solid Data Systems, Indilinx, and SANRAD -- in order to bolster its R&D force. The company has also signed an agreement with Wells Fargo, giving it access to a $50 million credit facility beginning in February 2012, which can be extended to $75 million. This deal will probably stand OCZ in good stead as it looks to expand its product portfolio.
The Foolish takeaway
Tech analysts forecast that SSD shipments will grow 51% annually over the next four years. And when we intertwine the industry's prospects with OCZ's potential, it seems like we have a stock which might give good returns in the long run.
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Fool contributor Harsh Chauhan owns none of the stocks mentioned in the article. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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