sTec, Inc. (NASDAQ: sTec) a leading global provider of solid-state
storage solutions, today began mailing its definitive proxy
statement for the company's Annual Meeting of Shareholders
scheduled for July 12, 2013. In addition, Kevin C. Daly, Ph.D.,
Chairman of sTec's Board of Directors, sent a letter to all
shareholders highlighting the progress that has been made in
executing the company's growth strategy, which is designed to
generate more than $200 million in revenue in 2014.
"I am proud of the progress we have made thus far and appreciate
the dedication and hard work of our employees and management team
that has made it possible," said Dr. Daly. "We fully anticipate
that the next few years will be critical for sTec as we move to
reposition the company in a rapidly evolving industry and expand
our footprint, both geographically and within our target customer
base. We believe the Board's nominees are best equipped to position
sTec to emerge as a much stronger company with a more robust set of
product offerings for those customers."
Text of letter from Dr. Daly to sTec shareholders:
June 10, 2013
Dear Fellow sTec Shareholders,
As many of you know, we at sTec have undertaken a multi-faceted
approach to better compete, as well as to grow and strengthen key
aspects of our company. In support of this, your company has made
significant progress in executing sTec's recently announced
rebranding and repositioning strategy designed to better align sTec
with the changing dynamics of our industry. Critical to this change
has been the broadening of our channels to market by adding direct
enterprise sales and marketing to our existing OEM business. We are
doing this not only to provide sTec with a healthy balance of
channels to market, but because significant aspects of the storage
industry's growth are occurring outside of the traditional OEM
channels.
We are beginning to see significant traction from our new
go-to-market strategy and are successfully diversifying our
customer base to include enterprise end customers, a segment we
believe is key to our growth objectives and long-term success.
We believe that the successful execution of this carefully
crafted strategy, with specifically delineated milestones over the
course of the next few years, will deliver long-term value to all
sTec shareholders.
Massive Data Growth is Stressing Current IT
Architectures
The global market's continuous creation of and insatiable
appetite for data, coupled with the ever-growing needs to access,
store, and analyze more efficiently, is stretching the limits of
existing IT infrastructures. Even with significant increases in IT
spending and enhanced access to centralized hyperscale data
centers, managing these massive data volumes is becoming
increasingly problematic and complex. As a result, alternative
storage solutions that take better advantage of cloud-based
resources are being sought by many existing and prospective
customers, both small and large; importantly, solid-state storage –
sTec's core expertise – is a critical element of these new
architectures. We believe the successful execution of our strategy
will further align sTec with these trends and allow us to
capitalize on that growth.
Diversifying our Customer Base
As we continue to implement our plan, we believe that the
technical and customer initiatives that we are undertaking now will
establish a solid foundation for sTec's future. Our goal is to
achieve a sales mix with approximately half of our revenue derived
from new, non-OEM customers, including global channel partners and
direct enterprise customers, and the other half coming from OEM
customers. This is consistent with the sales mix estimates of
International Data Corporation (IDC) for the overall enterprise
storage industry by 2016.
Delivering on this Significant Market
Opportunity
To put the potential of our market opportunity into perspective
for you, IDC expects that by 2017 enterprise solid-state drive
(SSD) revenue will reach $7.2 billion, up 187% percent from 2012.
Given sTec's strong intellectual property portfolio and technology,
the process discipline that we have gained from our historical OEM
business, and our rebranding and repositioning strategy, we believe
we can capture at least a 5% share of this enterprise SSD
market.
The enterprise solid-state storage market, which sTec
essentially invented about a decade ago, is evolving at a
break-neck pace and the opportunities for us to further expand our
presence in this market have never been more promising than they
are today. To maximize this opportunity, it is essential that we
continue to expand our enterprise sales and marketing teams.
Recruiting highly accomplished personnel with expertise in systems
and applications will position us to best sell to and serve our
expanding customer base. Our recruitment efforts to date are
already yielding results, and we are engaged with a more diverse
range of customers than ever before — some of which already are
representing sizable opportunities.
Furthermore, the diversification of our customer base will
reduce our historical dependence on a handful of OEM customers.
We believe that broadening our customer base will provide us
with greater opportunities at a time when the OEM customers'
competitive landscape is changing as well.
Success of Transition Requires Timely Execution,
Coherent Implementation, and Consistent Focus among sTec's
Management and Directors
In the midst of all of this change, we were notified by two
dissident shareholders, acting in concert, together of their intent
to nominate directors in opposition to those put forth by your
current Board – the very Board that is actively moving this company
in the right direction. We should not allow the company's
progress to be derailed by these dissidents, Balch Hill and Potomac
Capital. As always, your Board and management team maintain
an open dialog with all shareholders. In that regard, over
the past few months, sTec's Board has met a number of times with
and been willing to consider any value-creating proposals made by
these investors. Of course, in order to have a productive open
dialog between insiders and non-insiders, certain protective
parameters must be put in place, and we proffered standard
arrangements to facilitate such an open
interaction. Unfortunately, we have consistently been
disappointed by the dissidents' breaches of confidentiality and
repeated refusals to sign a limited non-disclosure agreement.
By choosing to prioritize their own desire to maximize
trading flexibility over the ability to conduct meaningful due
diligence on our company and more fully understand our business
through open and informed discussion with our management, they have
both underscored their own self-interest and revealed their
short-term investment horizon.
It has also become apparent that the dissidents' proposed path
of having sTec focus solely on OEMs is highly risky and reflects
their fundamental lack of understanding of the enterprise SSD
market in general and our business in particular. The
competition for SSD sales to system OEMs has become fierce, the
qualification windows are long, margins have become compressed, and
the key determinant of success is cost. To be clear, we fully
intend to maintain and expand our OEM relationships going forward.
However, we believe the growth behind our business is and
will continue to be driven by our non-OEM customers. With
these customers, our core strengths of being able to design
solutions tailored to their applications and optimize flash within
their systems will allow us to sell with a value-added approach,
and not solely based on providing the lowest component cost.
Gaining Early Traction with New Enterprise
Customers
We have seen early signs of validation of this strategy with
customers in our targeted vertical markets. A major national
telecom provider, for example, was looking to expand its private
cloud service business and we helped that customer incorporate our
SSDs to allow it to process greater volumes of data more
efficiently and save millions of dollars compared with purchasing
traditional storage systems directly from OEMs. This telecom
provider was a customer representing greater than 10% of our
revenue in the second half of last year, buying over $11 million
worth of SSDs as part of its initial build-out. We expect it to be
a meaningful customer again this year, in line with the planned
expansion of its network. It is important to understand that
situations like this are much more prevalent today than ever
before; major enterprise customers across all our targeted vertical
markets are contemplating large-scale SSD-based system deployments
to upgrade their architectures and minimize data processing
bottlenecks.
The opportunity is growing to provide end customers with more
sophisticated, tailored, cost-effective storage solutions, which
typically cannot be provided by traditional OEMs or storage
component providers. And we are focused on capitalizing on
this trend.
As explained above, our strategy is one designed to maximize
long-term value creation and not to appease a single shareholder
group's short-term objectives. Thus, it appears we may be
fundamentally at odds with the dissidents as to the right goal for
sTec in general, before we even get to the best way to achieve that
goal.
Nevertheless, we are proponents of giving shareholders with a
significant stake in sTec a voice on the Board. Accordingly,
as you may be aware, sTec's Board previously offered to add two of
the dissident director nominees with engineering backgrounds to our
existing Board. That is more than a reasonable representation
given their combined approximate 9.8% ownership position in the
company. This offer was declined by the dissident
shareholders and they have instead opted to proceed with an
expensive and disruptive proxy contest by nominating three
directors. The Board believes its offer was more than
equitable, and that their demand for three of eight Board seats for
holders aggregating less than 10% of the company's shares is
overreaching and goes beyond what is appropriate under the
circumstances.
Strengthening our Board -- New Director Nominee Alan E.
Baratz, Ph.D.
Given the significant ongoing changes in our industry, we
believe continuity of leadership is of paramount importance at this
time. Our Board and key senior management team are critical
to implementing our plan and to retaining our world-class
engineering talent. To further diversify and bolster the
expertise of our Board of Directors, sTec is proposing to increase
the size of the Board to eight and has nominated Alan E. Baratz,
Ph.D., as a new director. Dr. Baratz has a deep background in
the storage industry, information technology and enterprise
software, and has served in various senior management positions at
Cisco Systems, Sun Microsystems and Neopath Networks, a storage
technology startup that was subsequently acquired by Cisco
Systems. He holds a Master's degree and a Ph.D. in computer
science from the Massachusetts Institute of Technology
(MIT). We believe Dr. Baratz will be very valuable to us
during this time, given the scope and depth of his experience in
our industry, as well as his familiarity with our key customers –
both current and prospective.
We are asking for your support at our July 12 Annual Meeting of
Shareholders, and urge shareholders to vote for all eight nominees
recommended by sTec's Board. We do not endorse the election
of any of Balch Hill-Potomac's nominees.
All that we have done and continue to do is designed to position
the company for the future and provide meaningful and sustainable
value enhancement to all of our shareholders, not just the
dissidents and their short-term interests. We believe our
management team has created strong momentum and we look forward to
continuing a dialogue with all shareholders as we report on our
progress in the months and quarters ahead.
Your vote is very important in this election, and we urge you to
vote today FOR sTec's nominees by
telephone, by Internet, or by signing and dating the
enclosed WHITE proxy card and returning it in the postage-paid
envelope provided.
On behalf of the sTec Board of Directors,
Kevin C. Daly, Ph.D., Chairman
About sTec, Inc.
sTec, Inc. is a leading global provider of enterprise-class,
solid-state storage solutions designed for the ever-growing
performance, reliability and endurance requirements of today's
advanced data centers. The industry's first company to deploy
solid-state drives (SSDs) into large-scale enterprise environments,
sTec offers the industry's widest range of solid-state storage
solutions, which protect critical information for major business
and government organizations worldwide. Headquartered in Santa Ana,
California, sTec also serves the embedded and military/aerospace
markets with SSDs for industrial and rugged environments. For more
information, visit www.stec-inc.com.
sTec and the sTec logo are either registered trademarks or
trademarks of sTec, Inc. in the United States and certain other
countries. All other trademarks or brand names referred to
herein are the property of their respective owners.
Safe Harbor Statement under the Private Securities
Litigation Reform Act of 1995
This press release contains forward-looking statements that
involve risks and uncertainties, including, but not limited to,
statements concerning or related to management's business and
market strategy plan for 2013 and beyond; 2013 revenue expectations
from a major national telecom provider; revenue expectations for
2014; sales mix by 2016; anticipated enterprise SSD market share in
2017; the future financial performance and outlook of the company;
results of our new rebranding and repositioning strategy;
contributions of management and the company's directors; changing
dynamics of the enterprise storage and server markets; the
broadening of channels to market by adding direct enterprise sales
and marketing to the company's existing OEM business; the
qualification and sale of the company's products and solutions into
new, non-OEM customers, including global channel partners and
direct enterprise customers, along with OEM customers; diversifying
the company's customer base and changing customer sales mix; the
capabilities, performance, cost advantages, and benefits of the
company's products and solutions, and developing technologies and
product offerings; and matters to be presented at sTec's 2013
Annual Meeting of Shareholders. Such forward-looking statements are
based on current expectations and involve inherent risks and
uncertainties, including factors that could delay, divert or change
any of them, and could cause actual outcomes and results to differ
materially from current expectations. Although sTec believes that
the forward-looking statements contained in this release are
reasonable, it can give no assurance that its expectations will be
fulfilled. Additional important factors which could cause actual
results to differ materially from those expressed or implied in the
forward-looking statements are detailed 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. Special attention
is directed to the portions of those documents entitled "Risk
Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The information contained in
this press release is a statement of sTec's present intention,
belief or expectation. sTec may change its intention, belief, or
expectation, at any time and without notice, based upon any changes
in such factors, in sTec's assumptions or otherwise. Except as
required by law, 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.
Vote the WHITE Proxy Card to Support all eight nominees
recommended by sTec's Board
If you have any questions on how to vote your shares, please
call or email our proxy solicitor:
MACKENZIE PARTNERS, INC. (212)
929-5500 (Call Collect) or Call Toll-Free (800) 322-2885 or email:
proxy@mackenziepartners.com
Additional Information and Where to Find It
sTec has filed with the Securities and Exchange Commission
("SEC"), and has mailed to sTec's shareholders, a proxy statement
(the "Proxy Statement") in connection with its 2013 Annual Meeting
of Shareholders (the "2013 Annual Meeting"). sTec's
shareholders are urged to read the Proxy Statement and other
documents filed with the SEC because they contain important
information. A copy of the Proxy Statement and other
relevant documents are available on the SEC's website at
http://www.sec.gov and a copy may be obtained without charge upon
request (by mail or telephone) to sTec, Inc., Attn: Corporate
Secretary, 3001 Daimler Street, Santa Ana, California 92705-5812,
telephone: (949) 476-1180, or from the "Investor Relations" section
of sTec's website at www.stec-inc.com.
sTec and certain of its directors and executive officers may be
deemed to be participants in the solicitation of proxies in
connection with the election of directors at the 2013 Annual
Meeting. Information regarding sTec's directors and executive
officers, including their ownership of sTec common stock, can be
found in the Proxy Statement.
CONTACT: Mitch Gellman
Vice President of Investor Relations
sTec, Inc.
(949) 260-8328
ir@stec-inc.com
Jerry Steach
Director, Public Relations
sTec, Inc.
(415) 222-9996
jsteach@stec-inc.com
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