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STEC Announces Second Quarter 2007 Results
SANTA ANA, Calif., Aug 13, 2007 (PrimeNewswire via COMTEX News Network) -- STEC, Inc. (Nasdaq:STEC), announced today its financial results for the second quarter ended June 30, 2007.

Revenue for the second quarter of 2007 was $43.7 million, a decrease of 7.6% from $47.3 million for the second quarter of 2006, and a decrease of 7.4% from $47.2 million for the first quarter of 2007. GAAP gross profit margin was 31.3% for the second quarter of 2007, compared to 32.9% for the second quarter of 2006, and 30.6% for the first quarter of 2007. GAAP diluted earnings per share from continuing operations was $0.04 for the second quarter of 2007, compared to $0.09 for the second quarter of 2006, and $0.04 for the first quarter of 2007.

GAAP results in the second quarter of 2007 included start-up costs related to the company's Malaysia facility that is currently under construction, global tax structuring costs and first-year implementation costs related to Sarbanes-Oxley Act Section 404. Non-GAAP results are explained and reconciled to GAAP results in tables included in this release. Non-GAAP gross profit margin was 31.8% for the second quarter of 2007, compared to 32.9% for the second quarter of 2006, and 32.2% for the first quarter of 2007. Non-GAAP diluted earnings per share was $0.05 for the second quarter of 2007, compared to $0.09 for the second quarter of 2006, and $0.05 for the first quarter of 2007.

Business Outlook

"During the second quarter of 2007, sampling activity and production revenue from our new line of Zeus IOPS Solid-State Drives ("SSD") accelerated in the Enterprise-storage and Video-on-Demand ("VoD") sectors," said Manouch Moshayedi, STEC's chief executive officer. "Market receptivity for Zeus IOPS with Fibre Channel has been exceptional. We believe that at this time, our technology is clearly the leading technology for Enterprise-level applications. In a previous conference call, we projected a significant impact from our Zeus IOPS SSDs in 2008 and beyond, with modest, first-year revenue to range from $5 million to $10 million in 2007. As a result of the success of sampling programs, we are confident that we will reach our goal for 2007. More importantly, we believe that our long-term outlook for our SSD technology for the Enterprise-storage and Enterprise-server sectors, VoD and other target sectors is very bright.

Malaysia Facility

"We are on target toward achieving another of our long-term growth initiatives, the construction and build-out of our state-of-the-art, 210,000 square foot manufacturing/engineering/sales and marketing/logistics facility located in Penang, Malaysia. We expect construction of our permanent facility to be completed by the end of 2007, the facility to be operational in the first quarter of 2008 and ramp up to meaningful production levels by the third quarter of 2008. We expect our investment in this new facility to help reduce average production and engineering costs, improve access to growing markets in Asia, improve supply-chain efficiency and most importantly, lower our overall long-term effective corporate tax rate.

Guidance

"We currently expect third quarter of 2007 revenue to range from $43 million to $45 million with diluted non-GAAP earnings per share to range from $0.04 to $0.06. We remain enthusiastic about our future in the ever-expanding SSD markets, the future opening of our Malaysia facility and the implementation of our long-term global tax strategy, all of which we expect will enable significantly improved long-term results."

Conference Call

STEC will hold an open conference call to discuss results for the second quarter of 2007. The call will take place today at 1:30 p.m., Pacific/4:30 p.m., Eastern. The call-in numbers for the conference are 1-800-781-3662 (United States and Canada) and 1-706-643-7710 (International).

Webcast

This call is being webcast. The webcast can be accessed by clicking on the "Investor Relations" link at www.stec-inc.com. The webcast will be archived and available for replay beginning approximately two hours after the live call concludes.

About STEC, Inc. (Nasdaq:STEC)

STEC, Inc. designs, develops, manufactures and markets custom memory solutions based on Flash memory and DRAM technologies. 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 "Investor Relations" and then "Email Alert."

The STEC logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=1079

Use of Non-GAAP Financial Information

To supplement the consolidated financial results prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), we use non-GAAP financial measures (non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP income from continuing operations before provision for income taxes, non-GAAP income from continuing operations and non-GAAP diluted earnings per share from continuing operations) that exclude start-up costs related to the Company's Malaysian facility that is currently under construction, global tax structuring costs and first-year implementation costs related to Sarbanes-Oxley Act Section 404. Management excludes these items because it believes that the non-GAAP measures enhance an investor's overall understanding of the Company's financial performance and future prospects by being more reflective of the Company's core, recurring operational activities and to be more comparable with the results of the Company over various periods. Management uses non-GAAP financial measures internally for strategic decision making, forecasting future results and evaluating current performance. Guidance is provided only on a non-GAAP basis due to the inherent difficulty of forecasting the timing or amount of such items. Difficulties in forecasting the non-GAAP items include the timing of customer audit approvals for the Malaysia facility which impacts the ramp up of production, registration costs for new entities related to our global tax structure and the amount of Sarbanes-Oxley preparation required. These items could be materially significant in our GAAP results in any period. By disclosing non-GAAP financial measures, management intends to provide investors with a more meaningful, consistent comparison of the Company's core operating results and trends for the periods presented. Non-GAAP financial measures are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies' financial information and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. A complete reconciliation between GAAP and non-GAAP information referred to in this release is provided in tables included in this release.

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: our belief that our Zeus IOPS technology is the leading technology for Enterprise-level applications; our confidence that we will reach our Zeus IOPS SSD revenue goal for 2007; projected significant impact from our Zeus IOPS SSDs in 2008 and beyond; belief that our long-term outlook based on our SSD technology for the Enterprise-storage and Enterprise-server sectors, VoD and other target sectors is very bright, expected timeframe for our new Malaysia facility to become operational and ramp up to meaningful production levels; expected benefits from our investment in the Malaysia facility; revenue and diluted earnings per share guidance for the third quarter of 2007; enthusiasm about our future in the SSD markets, the future opening of our Malaysia facility and the implementation of our long-term tax strategy; and expectation that such initiatives will enable significantly improved long-term results. 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. 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 the Company, including its Annual Report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K. Other factors that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements include the following risks: we may not realize the expected benefits of the recent divestiture of our Consumer Division; disruptions from the divestiture of our Consumer Division transaction could make it more difficult to maintain relationships with customers and employees; changes in demand from certain customer segments; the cost of raw materials may fluctuate widely in the future; our backlog may not result in future revenue; excess inventory held by our customers may reduce future demand for our products; we may not realized the expected benefits from our operations in Malaysia or from our global tax structuring; unexpected delays in or increased cost associated with the construction of our Malaysia facility; unexpected delays in the qualification process of our products with customers; our growth initiatives may not be successfully implemented; slower than expected expansion of our international business; we may not realize the anticipated benefits from any acquisitions of businesses, technologies, or assets we have and may undertake in the future; excess availability of DRAM or Flash memory could reduce component pricing resulting in lower average selling prices and gross profit; DRAM or Flash memory supply may tighten requiring suppliers to place their customers, including us, on limited component allocation; interruptions or delays at the semiconductor manufacturing facilities that supply components to us; higher than expected operating expenses; new and changing technologies limiting the applications of our products; our inability to become more competitive in new and existing markets, our inability to maintain and increase market share, difficulty competing in sectors characterized by aggressive pricing and low margins; new customer and supplier relationships may not be implemented successfully; higher than anticipated capital equipment expenditures; adverse global economic and geo-political conditions, including acts of terror, business interruption due to earthquakes, hurricanes, pandemics, power outages or other natural disasters; and potential impact of high energy prices and other global events outside of our control which could adversely impact customer confidence and hence reduce demand for our products. 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. 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.



                                   STEC, INC.
                          CONSOLIDATED BALANCE SHEETS
                                 (in thousands)
                                  (unaudited)
                                               June 30,    Dec 31,
                                                 2007       2006
                                               --------   --------
             ASSETS:
 Current Assets:
   Cash and cash equivalents                    $102,695   $ 40,907
   Accounts receivable, net of allowances
    of $1,083 at June 30, 2007 and $1,620
    at December 31, 2006                          29,822     34,823
   Inventory, net                                 35,770     51,453
   Deferred income taxes                             762      1,521
   Current assets of discontinued operation           --     57,880
   Other current assets                            2,475      1,691
                                                --------   --------
     Total current assets                        171,524    188,275
                                                --------   --------

 Furniture, fixtures and equipment, net           23,542     11,696
 Intangible assets                                 1,249      1,439
 Goodwill                                          1,682      1,682
 Other long-term assets                              593        423
 Deferred income taxes                             3,427      2,973
 Long-term assets of discontinued operations          --        168
                                                --------   --------
     Total assets                               $202,017   $206,656
                                                ========   ========

     LIABILITIES AND SHAREHOLDERS' EQUITY:
 Current Liabilities:
   Accounts payable                             $ 12,348   $ 21,104
   Accrued and other liabilities                   6,134      7,111
   Liabilities of discontinued operation              --     12,427
                                                --------   --------
     Total current liabilities                    18,482     40,642
                                                --------   --------

 Long-term income taxes payable                    1,437         --

 Shareholders' Equity:
   Common stock                                       50         49
   Additional paid-in capital                    136,437    128,353
   Retained earnings                              45,611     37,612
                                                --------   --------
     Total shareholders' equity                  182,098    166,014
                                                --------   --------
     Total liabilities and shareholders'
      equity                                    $202,017   $206,656
                                                ========   ========

                                   STEC, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)
                                  (unaudited)

                             Three Months Ended      Six Months Ended
                                 June 30,                 June 30,
                             -------------------   -------------------
                               2007       2006       2007       2006
                             --------   --------   --------   --------
 Net revenues                $ 43,736   $ 47,281   $ 90,940   $ 87,714
 Cost of revenues              30,028     31,738     62,807     63,002
                             --------   --------   --------   --------
   Gross profit                13,708     15,543     28,133     24,712
                             --------   --------   --------   --------

 Sales and marketing            4,273      4,019      8,706      7,027
 General and
  administrative                4,082      3,040      7,915      5,953
 Research and
  development                   3,493      2,181      7,192      4,201
                             --------   --------   --------   --------
   Total operating
    expenses                   11,848      9,240     23,813     17,181
     Operating income           1,860      6,303      4,320      7,531
 Interest income                  977        506      1,738        981
                             --------   --------   --------   --------
   Income from
    continuing
    operations before
    provision for
    income taxes                2,837      6,809      6,058      8,512
 Provision for income
  taxes                         1,120      2,550      2,288      3,132
                             --------   --------   --------   --------
   Income from
    continuing
    operations               $  1,717   $  4,259   $  3,770   $  5,380

 Discontinued operations:
   (Loss) income from
    operations of
    Consumer Division
    (including  gain on
    disposal of $8,005)      $    (14)  $    435   $  7,267   $    302
   Provision for income
    taxes                        (337)      (175)    (2,961)      (122)
                             --------   --------   --------   --------
   (Loss) income from
    discontinued
    operations                   (351)       260      4,306        180
                             --------   --------   --------   --------
 Net income                  $  1,366   $  4,519   $  8,076   $  5,560
                             ========   ========   ========   ========

 Net income (loss) per
  share:
 Basic:
   Continuing operations     $   0.04   $   0.09   $   0.07   $   0.12
   Discontinued operations   $  (0.01)  $   0.01   $   0.09   $   --
                             --------   --------   --------   --------
     Total                   $   0.03   $   0.10   $   0.16   $   0.12
                             ========   ========   ========   ========
 Diluted:
   Continuing operations     $   0.04   $   0.09   $   0.07   $   0.12
   Discontinued operations   $  (0.01)  $   0.01   $   0.09   $   --
                             --------   --------   --------   --------
     Total                   $   0.03   $   0.10   $   0.16   $   0.12
                             ========   ========   ========   ========
 Shares used in net
  income per share
  computation:
   Basic                       48,682     45,699     49,430     45,426
                             ========   ========   ========   ========
   Diluted                     50,445     46,379     51,698     46,291
                             ========   ========   ========   ========

The non-GAAP financial measures included in the following tables are non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP income from continuing operations before provision for income taxes, non-GAAP income from continuing operations and non-GAAP diluted earnings per share from continuing operations, which adjust for the following items: start-up costs related to the Company's Malaysia facility that is currently under construction, global tax structuring costs and implementation costs related to Sarbanes-Oxley Act Section 404. Management believes these non-GAAP financial measures enhance an investor's overall understanding of the Company's financial performance and future prospects by being more reflective of the Company's core operational activities and to be more comparable with the results of the Company over various periods. Management uses non-GAAP financial measure internally for strategic decision making, forecasting future results and evaluating current performance. By disclosing non-GAAP financial measures, management intends to provide investors with a more meaningful, consistent comparison of the Company's core, recurring operating results and trends for the periods presented. Non-GAAP financial measures are not prepared in accordance with GAAP; therefore, the information is not necessarily comparable to other companies' financial information and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP.

The items excluded from GAAP financial results in calculating non-GAAP financial results, are set forth below:



 a) The Malaysia facility start-up costs primarily relate to costs
    associated with our 25,000 square foot interim facility,
    depreciation on equipment, and operational, sales and marketing,
    general and administrative and research and development personnel
    costs. The Company uses its interim facility to train production
    employees, obtain facility certifications such as ISO
    certification, initiate the accounting and information systems
    and conduct customer audits to better prepare for the opening of
    the Company's 210,000 square foot facility. The Company expects
    to attain meaningful production volume from its full-scale
    production facility in the third quarter of 2008. As the interim
    and full-scale production facilities are not expected to
    contribute meaningfully to operations until the third quarter of
    2008, management believes excluding such items from the Company's
    operations provides investors with a means of evaluating the
    Company's current operations.

 b) The global tax structuring costs relate primarily to tax
    consulting, legal fees and filing fees associated with
    establishing various corporate entities throughout the world, and
    establishing cost-sharing and transfer pricing agreements among
    the worldwide entities. Management believes these cost should be
    excluded when evaluating core operations since management expects
    such costs to be immaterial after 2007.

 c) First-year Sarbanes-Oxley cost relate to accounting and
    consulting fees related to the Company's preparation to comply
    with Section 404 of the Sarbanes-Oxley Act in 2008 and the
    incremental amount of the first-year audit costs upon the Company
    first becoming subject to Sarbanes-Oxley Act Section 404 in 2008
    over the expected Sarbanes-Oxley audits cost in subsequent years.
    Management believes these cost should be excluded when evaluating
    core operations since management believes these costs will be
    immaterial after the first quarter of 2008.

                                   STEC, INC.
               Schedule Reconciling Non-GAAP Income to GAAP Income
                                 (in thousands)
                                   (unaudited)

                             Three Months Ended     Six Months Ended
                                   June 30,             June 30,
                             ------------------    ------------------
                               2007      2006       2007        2006
                             -------    -------    -------    -------
 Net income from
  continuing operations      $ 1,717    $ 4,259    $ 3,770    $ 5,380
                             =======    =======    =======    =======
 The non-GAAP amounts
 have been adjusted to
 exclude the following
 items:

 Excluded from cost of
 sales:
   Malaysia facility
    start-up costs (a)       $   207    $    --    $   284    $    --

 Excluded from
 operating expenses
   Malaysia facility
    start-up costs (a)       $   694    $    --    $ 1,126    $    --
   Global tax
    structuring costs (b)        192          7        271         56
   First-year
    Sarbanes-Oxley
    implementation
    costs (c)                     94         --        274         --
                             -------    -------    -------    -------
                               1,187          7      1,955         56
 Income tax effect on
  non-GAAP adjustments           469          3        739         21
                             -------    -------    -------    -------
 Net effect of
  adjustments to GAAP
  net income                     718          4      1,216         35
                             -------    -------    -------    -------
 Non-GAAP net income         $ 2,435    $ 4,263    $ 4,986    $ 5,415
                             =======    =======    =======    =======

 (a)-(c) See corresponding footnotes above.


                                   STEC, INC.
                 Schedule Reconciling Reported Financial Ratios
                                   (unaudited)

                              Three Months Ended     Six Months Ended
                                   June 30,              June 30,
                             -------------------   -------------------
                               2007       2006       2007       2006
                             --------   --------   --------   --------
 GAAP gross margin               31.3%     32.9%      30.9%      28.2%
 Effect of reconciling
  item on gross margin            0.5%      0.0%       0.3%       0.0%
                             --------   --------   --------   --------
 Non-GAAP gross margin           31.8%     32.9%      31.2%      28.2%
                             ========   ========   ========   ========




                                   STEC, INC.
                     Selected Non-GAAP Financial Information
                    (in thousands, except per share amounts)
                                   (unaudited)

                              Three Months Ended    Six Months Ended
                                   June 30,              June 30,
                             -------------------   -------------------
                               2007       2006       2007       2006
                             --------   --------   --------   --------

 GAAP gross margin           $ 13,708   $ 15,543   $ 28,133   $ 24,712
   Malaysia facility
    start-up costs (a)            207         --        284         --
                             --------   --------   --------   --------
 Non-GAAP gross margin       $ 13,915   $ 15,543   $ 28,417   $ 24,712
                             ========   ========   ========   ========


 GAAP operating expenses     $ 11,848   $  9,240   $ 23,813   $ 17,181
   Malaysia facility
    start-up costs (a)           (694)        --     (1,126)        --
   Global tax structuring
    costs (b)                    (192)        (7)      (271)       (56)
   First-year
    Sarbanes-Oxley
    costs (c)                     (94)        --       (274)        --
                             --------   --------   --------   --------
 Non-GAAP operating
  expenses                   $ 10,868   $  9,233   $ 22,142   $ 17,125
                             ========   ========   ========   ========


 GAAP operating income       $  1,860   $  6,303   $  4,320   $  7,531
   Malaysia facility
    start-up costs (a)            901         --      1,410         --
   Global tax structuring
    costs (b)                     192         (7)       271        (56)
   First-year
    Sarbanes-Oxley
    implementation
    costs (c)                      94         --        274         --
                             --------   --------   --------   --------
 Non-GAAP operating income   $  3,047   $  6,296   $  6,275   $  7,475
                             ========   ========   ========   ========

 GAAP income from
  continuing operations
  before provision for
  income taxes               $  2,837   $  6,809   $  6,058   $  8,512
   Malaysia facility
    start-up costs (a)            901         --      1,410         --
   Global tax structuring
    costs (b)                     192         (7)       271        (56)
   First-year
    Sarbanes-Oxley
    implementation
    costs (c)                      94         --        274         --
                             --------   --------   --------   --------
 Non-GAAP income from
  continuing operations
  before provision for
  income taxes               $  4,024   $  6,802   $  8,013   $  8,456
                             ========   ========   ========   ========

 GAAP income from
  continuing operations      $  1,717   $  4,259   $  3,770   $  5,380
   Malaysia facility
    start-up costs (a)            901         --      1,410         --
   Global tax structuring
    costs (b)                     192          7        271         56
   First-year
    Sarbanes-Oxley
    implementation
    costs (c)                      94         --        274         --
   Income tax effect on
    non-GAAP adjustments         (469)        (3)      (739)       (21)
                             --------   --------   --------   --------
 Non-GAAP income from
  continuing operations      $  2,435   $  4,263   $  4,986   $  5,415
                             ========   ========   ========   ========

 GAAP diluted earnings
  per share from
  continuing operations      $   0.04   $   0.09   $   0.07   $   0.12
 Impact of non-GAAP
  adjustments on diluted
  earnings per share         $   0.01   $     --   $   0.03   $     --
                             --------   --------   --------   --------
 Non-GAAP diluted
  earnings per share from
  continuing operations      $   0.05   $   0.09   $   0.10   $   0.12
                             ========   ========   ========   ========

 (a)-(c) Refer to the corresponding footnotes above.

This news release was distributed by PrimeNewswire, www.primenewswire.com

SOURCE: STEC, Inc.

STEC, Inc.
          Media Contact:
          Patrick Wilkison, Vice President, Marketing and Business 
           Development
            (949) 476-1180
            pwilkison@stec-inc.com
          Investors and Financial Media Contact:
          Mitch Gellman, Vice President of Investor Relations
            (949) 260-8328
            ir@stec-inc.com
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding sTec, Inc.'s business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.