The bloodbath at Santa Ana’s STEC Inc., a maker of flash memory drives for corporate and industrial uses, continued on Wednesday, a day after the company gave a dismal outlook for the current quarter that prompted a slew of analysts to slash their ratings on the stock.
Investors sent shares plummeting 24% in midday New York trading on a recent market value of around $511 million.
STEC stock has lost around a quarter of its value since the close of trading on Tuesday, when it got hammered afterhours for giving financial guidance that wasn’t even close to Wall Street’s average expectations.
For the first quarter, STEC said it’s expecting sales of $33 million to $35 million, short of Wall Street analysts’ revised sales outlook of $70 million.
The company is looking for profits of $5.5 million to $6.5 million, short of analysts’ lowered expectation of $10 million.
STEC outlook slipped due to slowing sales of STEC’s drives that use flash memory chips instead of spinning disks to store huge amounts of data for banks and retailers.
STEC’s biggest customer, Hopkinton, Mass.-based storage kingpin EMC Corp., has slowed its ordering due to an inventory buildup of the drive, which it first warned about back in November.
“We believe that the first half of 2010 will be a trough period for our business due to an inventory carryover by our largest customer,” Chief Executive Manouch Moshayedi said in a statement. “Based on our best estimates we now anticipate this inventory carryover to continue to negatively impact our sales to this customer during the first half of 2010, as we do not expect any meaningful production orders from this customer during that time.”
Half a dozen analysts have cut their ratings on STEC’s shares and reduced their estimates by more than half for the first quarter.
The inventory issues from EMC has also raised questions about demand for solid state drives, their rate of adoption and the size of the market in general.
“In light of EMC’s transition from a 62% customer in the fourth quarter to a 0% customer in the first quarter, we find ourselves resetting our model for STEC,” said Gary Hsueh, an analyst at Oppenheimer & Co. in San Francisco.
