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Surviving A Second Hard-Drive Crash With OCZ

Stocks in this article: INTC STX WEDC OCZ

NEW YORK ( TheStreet) -- Computer storage provider OCZ Technology Group (OCZ) and hard-drive makers Western Digital (WDC) and Seagate Technology (STX) are trading lower after OCZ lowered guidance for the quarter that ended Aug. 31.

As of Thursday's market open, OCZ is down about 30% from highs on Wednesday. Shares in Seagate are lower in sympathy, down 4%. Western Digital's are lower by less than 1%.

Intel (INTC), which has a strong enterprise presence in the solid-state storage space, opened higher to trade up over 1%. Intel's relative revenue stream from solid-state drives is minimal.

OCZ CEO Ryan Petersen stated in the preliminary second-quarter earnings report:

"Despite achieving bookings in excess of our expectations for our second fiscal quarter, we were not able to meet our previously stated revenue guidance due primarily to constraints in NAND flash supply.

"During the month of August we experienced a significant shortage on certain NAND flash components, based on industry wide tightening of supply, leaving OCZ with an undersupply of the 2xnm MLC NAND used in our Vertex and Agility Line of products.

"While we believe that the situation will resolve itself, subject to market conditions, we plan to hasten our transition to new process nodes in order to help ease these supply constraints."

According to the preliminary report, revenue for OCZ's fiscal second quarter is $110 million to $120 million, down $20 million from the previous estimate of $130 million to $140 million.

You could have seen this coming before it happened.'s Dick Arms wrote a great article about OCZ and how it was overbought. Had you read it, you could have been warned early.

Short-sellers couldn't ask for better timing with Thursday night lobster night. OCZ has short interest of 38% of the float. This is a great illustration of why I call short-sellers the "smart money" and why you need to pay attention to their activity. Short-sellers don't always make money, but usually when you see short interest this high what happened today follows.

This isn't the first miss by OCZ recently. In July, I wrote Surviving OCZ: More Than a Hard-Drive Crash .

In July's miss, CEO Petersen blamed power supplies for revenue and gross margin tightness.

"It's important to note that our power supply business is experiencing significant headwinds in terms of both revenue and gross margins, as sales of desktop PCs which use these products continue to dwindle. As such, our power supply revenue and gross margin during the quarter were well below our expectations."

It doesn't raise a lot of confidence when each quarter there is a different excuse as to why the company is not executing. If Seagate and Western Digital continue to increase and hit their numbers, is it really an industrywide issue or is the problem more an OCZ supply-chain problem?

Based on the stock price charts, it appears this is more of an OCZ problem. Investors continue to bid high for both Seagate and Western Digital, while OCZ languishes in the discount bin.

FBN Securities downgraded OCZ and moved the price target down to $4 from $6. Needham and Craig-Hallum Capital also downgraded OCZ.

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