SANTA ANA, Calif., Feb. 9, 2007 (PRIME NEWSWIRE) -- STEC, (pronounced "es tee ee see"), which is changing its name from SimpleTech, Inc. (Nasdaq:STEC), announced today that effective January 1, 2007, it has agreed to terms with one of its OEM Division DRAM customers on a value-add revenue agreement. Under the terms of the agreement STEC is no longer the primary obligor and the company's general inventory risk on DRAM chips used in the manufacture of memory modules for the customer has been eliminated. As a result, STEC will record related revenue on a value-add only basis, passing through the cost of the DRAM chips and charging the customer only for the manufacturing and kitting services provided by the company. This method of accounting for such value-add revenue, is commonly used by competitors doing business in the OEM DRAM module sector. This accounting method conforms to the Emerging Issues Task Force (EITF) Issue No. 99-19, Reporting Revenue as a Principal versus Net as an Agent.
The value-add revenue method will result in lower revenue and higher gross profit margin percentage, but will be neutral for gross profit dollars and diluted earnings per share. The table below illustrates the impact of this model by comparing the actual revenue, gross profit and gross profit percentage recorded in the first, second and third quarters of 2006 for the related customer and the OEM Division versus the pro forma revenue, gross profit and gross profit percentage for this customer assuming that a value add revenue method had been in effect during the first, second and third quarters of 2006.
Customer Analysis:
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(In thousands) Q1 2006 Q2 2006 Q3 2006
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As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
Customer Customer Customer Customer Customer Customer
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Sales $ 9,653 $ 3,875 $10,340 $ 3,523 $14,517 $ 4,863
Cost of
Goods
Sold $ 8,202 $ 2,424 $ 8,181 $ 1,364 $11,410 $ 1,756
Gross
Profit $ 1,451 $ 1,451 $ 2,159 $ 2,159 $ 3,107 $ 3,107
Gross
Profit % 15.0% 37.4% 20.9% 61.3% 21.4% 63.9%
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OEM Division Analysis:
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(In thousands) Q1 2006 Q2 2006 Q3 2006
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As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
OEM OEM OEM OEM OEM OEM
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Sales $40,433 $34,655 $47,281 $40,464 $53,755 $44,101
Cost of
Goods
Sold $31,264 $25,486 $31,738 $24,921 $35,185 $25,531
Gross
Profit $ 9,169 $ 9,169 $15,543 $15,543 $18,570 $18,570
Gross
Profit % 22.7% 26.5% 32.9% 38.4% 34.5% 42.1%
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"This change will have a significant positive impact on our overall corporate gross profit margin percentage," said Manouch Moshayedi, Chairman and Chief Executive Officer of SimpleTech.
Conference Call
STEC will hold an open conference call to discuss the divestiture of its Consumer Division and prospects for its OEM Division and other announcements made by the company in press releases issued today. The call will take place on Monday, February 12, 2007, at 5:30 a.m., Pacific/8:30 a.m., Eastern. The call-in numbers for the conference are 1-800-781-3662 (United States and Canada) and 1-706-643-7710 (International). The conference ID # is 8838312. The webcast will be archived and a replay available approximately two hours after the live call concludes. The replay can be accessed for at least the next twelve months. The webcast archive can be accessed at the company's new website: www.stec-inc.com, click "Investors."
About SimpleTech, Inc. (Nasdaq:STEC)
SimpleTech, Inc., which is changing its name to STEC, Inc., designs, develops, manufactures and markets custom memory solutions based on Flash memory and DRAM technologies. The company has announced that it intends to change its corporate legal name from SimpleTech, Inc. to STEC, Inc. Although the legal name of the company will continue to be SimpleTech, Inc. until the name change process has been completed, for marketing and branding purposes the company has begun referring to itself as STEC. For information about STEC and to subscribe to the company's "Email Alert" service, please visit our web site at www.stec-inc.com, click "Investors" and then "Email Alert."
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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This release may contain forward-looking statements that involve risks and uncertainties, including, but not limited to, statements concerning the impact of the value-add revenue method to our revenue, gross profit margin percentage, gross profit dollars, diluted earnings per share, OEM Division DRAM gross profit margin percentage and overall corporate gross profit margin percentage. Actual results may differ materially from the results predicted. Important factors which could cause actual results to differ materially from those expressed or implied in the forward-looking statements are detailed under "Risk Factors" in filings with the Securities and Exchange Commission made from time to time by STEC, including its Annual Report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. STEC undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.