Shares of Irvine’s Netlist Inc., a maker of specialized memory products for servers, slumped on Tuesday after an analyst downgraded the stock.
Netlist closed down more than 17% on a recent market value of $72 million.
The company got hammered a day after reporting third-quarter results that showed a wider loss and higher expenses than analysts were expecting.
After the close of trading on Monday, Netlist reported a loss of $5 million, more than the $4 million analysts were expecting and more than the $2 million it lost a year earlier.
The company saw sales of $11 million, up 64% and in line with analysts’ expectations.
“While the revenue performance was effectively in line, the greater than expected loss was due to increased engineering, sales and marketing costs as well as sampling and qualification expenses,” Needham & Co. analyst Richard Kugele said.
Late last year, Netlist embarked on a strategy to shift away from the dead-end business of making commodity memory modules.
Netlist now targets a niche by making memory boards with specialized controller chips that help manage other memory within servers.
Kugele downgraded his rating on the Netlist to “hold” from “buy” and said he was concerned about the company’s future prospects getting its specialized memory products qualified with potential customers.
Gumming up the works were a quality issue with certain supplies, Kugele said.
“We are concerned that the component issues that have slowed the qualification cycle significantly increases the risk,” he said in a note to clients. “We are lower our rating … until greater visibility into qualifications and ramps appears. The slower time to ramp has a significant effect on our projections.”
The analyst still has faith in Netlist’s strategy and that the company’s memory products is a “critical technology and will eventually be qualified.”
Netlist has had a rough couple of years since its initial public offering in late 2006, when it raised roughly $35 million.
A massive memory chip slump in 2007 and another in 2008 all but steamrolled Netlist as falling prices of memory chips slashed the value of its stockpiles and squeezed profits.
The new controller chips, for which Netlist holds patents, help boost performance, cut down on power and save on costs for running data storage centers, according to the company.
Netlist still is a tiny player among larger competitors, such as Northern California’s Smart Modular Technologies Inc. and Fountain Valley’s Kingston Technology Co.
