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STEC Announces Third Quarter of 2008 Results -- SSD Opportunities Continue to Drive Growth and Positive Outlook
Revenue and Non-GAAP Diluted Earnings Per Share Increase During Third Quarter
SANTA ANA, Calif., Nov 10, 2008 (GlobeNewswire via COMTEX News Network) -- STEC, Inc. (Nasdaq:STEC) announced today its financial results for the third quarter ended September 30, 2008. Revenue for the third quarter of 2008 was $63.7 million, an increase of 42.5% from $44.7 million for the third quarter of 2007, and an increase of 13.3% from $56.2 million for the second quarter of 2008.

Non-GAAP gross profit margin was 34.1% for the third quarter of 2008, compared to 31.1% for the third quarter of 2007, and 35.3% for the second quarter of 2008. Non-GAAP diluted earnings per share was $0.10 for the third quarter of 2008, compared to $0.06 for the third quarter of 2007, and $0.09 for the second quarter of 2008.

GAAP gross profit margin was 32.1% for the third quarter of 2008, compared to 29.0% for the third quarter of 2007, and 32.3% for the second quarter of 2008. GAAP diluted earnings per share from continuing operations was $0.02 for the third quarter of 2008, compared to $0.01 for the third quarter of 2007, and $0.03 for the second quarter of 2008. Non-GAAP results in the third quarter of 2008 include start-up costs related to the Company's Malaysia facility, costs related to its global tax-restructuring and the corresponding short-term impact of this restructuring on the Company's effective tax rate, IP litigation costs, hiring and recruiting fees for key research and development employees, customer evaluation product costs for new DDR3 technology memory, employee severance and employee stock compensation expense. Non-GAAP results are explained and reconciled to GAAP results in tables included in this release.

Business Outlook

"We are very pleased with our results for the third quarter of 2008 and the momentum our business continues to sustain," said Manouch Moshayedi, STEC's Chairman and Chief Executive Officer. Despite challenging macro-economic conditions, we have once again grown our quarterly revenues and non-GAAP diluted earnings per share. The execution of our key SSD market initiatives -- Enterprise-Storage and Enterprise-Server -- positively impacted third quarter of 2008 results. Our existing OEM customers and their customers are now further along in their testing of our products as they prepare to deploy systems incorporating our SSDs. Furthermore, we continue to find additional opportunities for our ZeusIOPS and Mach8 product families for new customers across a wide array of industries looking to leverage the cost and power saving advantages of SSDs in their high-end storage and server platforms.

"I would like to clearly reiterate that we are on track to execute the strategic plan which we have consistently described to you during the last two years. Our results for the third quarter of 2008, including quarter-over-quarter and sequential quarterly growth of both revenue and non-GAAP diluted earnings per share, affirm our own confidence that we have properly aligned our business to succeed, particularly at a time when others are reeling from difficult market conditions and struggling to execute to a meaningful plan. I am pleased with our execution in the third quarter of 2008 and more so with our longer-term outlook."

Guidance

"We currently expect fourth quarter of 2008 revenue to range from $69 million to $72 million with diluted non-GAAP earnings per share to range from $0.11 to $0.14."

Our SSD Market Initiatives

Enterprise-Storage and -Server Markets

"During the third quarter of 2008 we again achieved an increase in revenue from our ZeusIOPS line of SSDs to $13.7 million. We are forecasting sales of ZeusIOPS of more than $17 million during the fourth quarter of 2008 and therefore expect to achieve our long-stated goal for ZeusIOPS revenue in 2008 of $50 million, a target we had set for ourselves more than a year ago. We would also like to re-emphasize our belief in the potential of SSD to be a disruptive technology, even with a less than optimal macro-economic backdrop for adoption."

Additional Market Opportunity for SSD

"We began shipping production units of our SSD products to a major Notebook OEM customer for their entrance into the Ultra-Mobile Personal Computer (UMPC) market in the third quarter of 2008. While the Notebook and Ultra-Mobile PC markets are not the primary target markets for our SSD products, we believe that our selection as this customer's SSD vendor in a key launch for them showcases our ability to design best-of-class solutions across a full range of SSD applications. Our SSD expertise, which has been developed to date through our successes in the Enterprise-Storage and Enterprise-Server markets, has enabled opportunities in these additional markets. We believe that the current environment of falling NAND Flash prices will help to further reduce the price of SSDs to the end-customer and stimulate demand in these markets."

Inventory Management

"We expect to reduce our inventory significantly, with a goal to reduce inventory to approximately $50 million by the end of the fourth quarter of 2008, and return to what we consider a normal run rate for our business. This is ahead of schedule as we had originally announced that we expected the inventory level to return to normalized levels by the end of the first quarter of 2009. We had maintained our inventory levels in the third quarter of 2008 primarily as a result of the procurement of NAND-Flash components based on customer forecasts and orders related to new product launches set for the second half of 2008 and the first quarter of 2009."

Our Investor Relations Calendar

"Next week we will be in NY, Boston and the Midwest for a number of investor-related events. First, on Monday, November 17, 2008, we will host our Analyst Day 2008 in New York City. The following day, we will present in New York at Oppenheimer's Best Ideas -- Midcap and Smallcap -- Conference. On Wednesday, November 19 Dan Moses, our retiring CFO and still Director; Raymond Cook our newly-appointed CFO and Mitch Gellman our Vice President of Investor Relations, will be presenting at the Wachovia 1st Annual Midwest Technology and Services Day in Chicago. If you are in these cities or are interested in learning about our business, we look forward to seeing you at one of these events."

Conference Call

STEC will hold an open conference call to discuss results for the third quarter of 2008. 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 gray "Nasdaq:STEC" tab at the top of the home page 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 Alerts" service, please visit our web site at www.stec-inc.com, click the "Nasdaq:STEC" tab at the top of the page and then click "Email Alerts."

The STEC, Inc. logo is available at http://www.globenewswire.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 Malaysia facility, a one-time inventory PCB write-down, global tax restructuring costs, first-year Sarbanes-Oxley Section 404 implementation costs, employee stock compensation expense, Consumer Division sale arbitration fees, IP litigation costs, hiring and recruiting fees incurred for key research and development employees, customer evaluation product costs for new DDR3 technology memory, employee severance and the short-term impact of the global tax restructuring on the Company's effective tax rate. 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 would impact the ramp up of production, registration costs for new entities related to our global tax restructuring and unexpected delays in shipping new products developed by our foreign subsidiaries in lower tax jurisdictions than the United States. 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. Certain amounts reported in prior releases may have been reclassified to conform to the current quarter's non-GAAP presentation.

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: the momentum our business continues to sustain; OEM customers and their customers preparing to deploy systems incorporating our SSDs; continuing to find additional opportunities for our ZeusIOPS and Mach8 product families for new customers across a wide array of industries; belief that we are on track to execute our strategic plan; pleased with our longer-term outlook; ZeusIOPS sales forecast of more than $17 million during the fourth quarter of 2008 and therefore expectation of achieving our ZeusIOPS revenue goal of $50 million in 2008; belief of the potential of SSDs to be a disruptive technology; belief that selection by a major Notebook OEM customer as its SSD vendor showcases our ability to design best-in-class solutions; belief that the current environment of falling NAND Flash prices will help to further reduce the price of SSDs to the end-customer and stimulate demand in the notebook and ultra-mobile notebook markets; expectation of reducing inventory significantly, to approximately $50 million by the end of the fourth quarter of 2008, and return to what we consider a normal run rate for our business; and revenue and diluted non-GAAP earnings per share guidance for the fourth quarter of 2008. 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: changes in demand from certain customer segments; the cost of raw materials may fluctuate widely in the future; excess inventory held by our customers may reduce future demand for our products; the invalidation or circumvention of our patents and intellectual property; the unexpected cost of intellectual property litigation, including such litigation diverting the efforts of our technical and management personnel; results of litigation is inherently uncertain; risk that our products could be enjoined by court or that an adverse result in litigation could lead to our obligation to pay significant damages and/or obtain a license; design wins may not lead to revenues; unexpected cancellation or rescheduling of orders by our customers; we may not realize the expected benefits from our operations in Malaysia or from our global tax restructuring; unexpected increases in the cost associated with the operation of our new 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 acquired or may acquire 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)

                                                 Sept. 30,   Dec. 31,
                                                   2008        2007
                                                 --------    --------
                    ASSETS:
 Current Assets:
   Cash and cash equivalents                     $ 29,359    $ 94,326
   Accounts receivable, net of allowances of
    $713 at September 30, 2008 and $944 at
    December 31, 2007                              49,767      34,288
     Inventory                                     80,248      31,556
   Deferred income taxes                            1,652       1,241
   Other current assets                             4,173       2,831
   Current assets of discontinued operations           --         197
                                                 --------    --------
   Total current assets                           165,199     164,439
                                                 --------    --------

 Leasehold interest in land                         2,595       2,662
 Property, plant and equipment, net                44,152      35,266
 Intangible assets                                    775       1,060
 Goodwill                                           1,682       1,682
 Other long-term assets                             1,698         997
 Deferred income taxes                              4,633       3,578
                                                 --------    --------
       Total assets                              $220,734    $209,684
                                                 ========    ========

      LIABILITIES AND SHAREHOLDERS' EQUITY:
 Current Liabilities:
   Accounts payable                              $ 22,562    $ 16,638
   Accrued and other liabilities                    9,602       6,169
   Liabilities of discontinued operations              10         483
                                                 --------    --------
       Total current liabilities                   32,174      23,290
                                                 --------    --------

 Long-term income taxes payable                     1,067         849

 Commitments and contingencies
 Shareholders' Equity:
   Preferred stock, $0.001 par value, 20,000,000
    shares authorized, no shares outstanding           --          --
   Common stock, $0.001 par value, 100,000,000
    shares authorized, 50,127,694 shares issued
    and outstanding as of September 30, 2008 and
    50,433,672 shares issued and outstanding as
    of December 31, 2007                               50          50
   Additional paid-in capital                     135,427     137,942
   Retained earnings                               52,016      47,553
                                                 --------    --------
       Total shareholders' equity                 187,493     185,545
                                                 --------    --------
       Total liabilities and shareholders'
        equity                                   $220,734    $209,684
                                                 ========    ========


                              STEC, INC.
                 CONSOLIDATED STATEMENT OF INCOME
               (in thousands, except per share amounts)
                             (unaudited)

                            Quarter Ended          Nine Months Ended
                             September 30,           September 30,
                           2008        2007        2008        2007
                         --------    --------    --------    --------
 Net revenues            $ 63,651    $ 44,699    $170,530    $135,639
 Cost of revenues          43,233      31,719     115,288      94,526
                         --------    --------    --------    --------
   Gross profit            20,418      12,980      55,242      41,113
                         --------    --------    --------    --------

 Sales and marketing        5,130       3,987      14,242      12,693
 General and
  administrative            7,159       5,006      18,071      12,921
 Research and
  development               5,736       3,387      14,891      10,579
                         --------    --------    --------    --------
   Total operating
    expenses               18,025      12,380      47,204      36,193

 Operating income           2,393         600       8,038       4,920
 Interest income              241       1,074       1,407       2,812
                         --------    --------    --------    --------
 Income from continuing
  operations before
  provision for income
  taxes                     2,634       1,674       9,445       7,732
 Provision for income
  taxes                     1,477       1,168       5,120       3,456
                         --------    --------    --------    --------
   Income from continuing
    operations              1,157         506       4,325       4,276
 Discontinued operations:
   Income from operations
    of Consumer Division
    (including gain on
    disposal of $8,005)        80         308         229       7,575
   (Provision) benefit
    for income taxes          (33)         16         (91)     (2,945)
                         --------    --------    --------    --------
     Income from
      discontinued
      operations               47         324         138       4,630
                         --------    --------    --------    --------
 Net income              $  1,204    $    830    $  4,463    $  8,906
                         ========    ========    ========    ========

 Net income per share:
   Basic:
     Continuing
      operations         $   0.02    $   0.01    $   0.09    $   0.09
     Discontinued
      operations               --        0.01          --        0.09
                         --------    --------    --------    --------
       Total             $   0.02    $   0.02    $   0.09    $   0.18
                         ========    ========    ========    ========
   Diluted:
     Continuing
      operations         $   0.02    $   0.01    $   0.09    $   0.08
     Discontinued
      operations               --        0.01          --        0.09
                         --------    --------    --------    --------
       Total             $   0.02    $   0.02    $   0.09    $   0.17
                         ========    ========    ========    ========

 Shares used in net
  income per share
  computation:
   Basic                   50,112      50,111      49,905      49,660
                         ========    ========    ========    ========
   Diluted                 51,449      51,884      51,333      51,762
                         ========    ========    ========    ========

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: (a) start-up costs related to the Company's Malaysia facility, (b) one-time inventory PCB write-down, (c) global tax restructuring costs, (d) implementation costs related to Sarbanes-Oxley Act Section 404, (e) employee stock compensation expenses, (f) Consumer Division sale arbitration fees, (g) IP litigation costs, (h) hiring and recruiting fees incurred for key research and development employees, (i) customer evaluation product costs for new DDR3 technology memory, (j) employee severance and (k) the short-term impact of the global tax restructuring on the Company's effective tax rate. 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 measures 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 used its interim facility during 2007 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. In 2008, the Malaysia
    operations moved from the 25,000 square foot interim facility to
    the permanent 210,000 square foot facility. As the full-scale
    production facilities are not expected to contribute meaningfully
    to operations until the end of the first quarter of 2009, management
    believes excluding such items from the Company's operations
    provides investors with a means of evaluating the Company's
    current operations.

 b) Printed Circuit Board ("PCB") inventory write-off costs relate to
    a one-time write-off of certain stacked PCBs. These PCBs were a
    component in stacked DRAM modules that were built with thin small
    outline package ("TSOP") DRAM chips. DRAM memory chips used in
    modules for the server market have substantially transitioned
    from TSOP memory chips to ball grid array ("BGA") memory chips.
    Although the Company typically purchases DRAM memory chips only
    after a related order is placed by a customer, PCBs are usually
    purchased in large lots and are stocked in order to keep unit
    purchase prices at a minimum. The PCB inventory write-down
    resulted from this one-time technology transfer occurring more
    rapidly than expected for its server customers.

 c) The global tax restructuring 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. These costs are included as a non-GAAP
    item as the Company believes these expenditures are one-time
    set-up fees and are therefore not indicative of the Company's
    recurring operational results.

 d) First-year Sarbanes-Oxley costs relate to accounting and
    consulting fees in conjunction with the Company's preparation to
    comply with Section 404 of the Sarbanes-Oxley Act in 2007 and the
    incremental amount of the first-year audit costs upon the Company
    first becoming subject to Sarbanes-Oxley Act Section 404 in 2007
    over the expected Sarbanes-Oxley audits cost in subsequent years.
    Beginning in the first quarter of 2008, the Company no longer
    treats Sarbanes-Oxley costs as a non-GAAP item.

 e) Employee stock compensation expenses in connection with SFAS 123R
    have been excluded as management omits these expenses when
    evaluating its core operating activities, for strategic decision
    making, forecasting future results and evaluating current
    performance.

 f) Consumer division arbitration fees relate to legal and consulting
    fees incurred in the arbitration proceeding with Fabrik, Inc.
    ("Fabrik") over the final purchase price adjustment for the sale
    of the assets of the Consumer division to Fabrik on February 9,
    2007. In accordance with the Purchase Agreement, both parties
    agreed to submit the disputed amounts to a third party arbitrator
    for resolution. In January 2008, the arbitrator rejected
    substantially all of Fabrik's claims. Management believes that
    legal and consulting fees incurred in conjunction with this
    arbitration proceeding should be excluded when evaluating core
    operations since management believes these costs are
    non-recurring.

 g) IP litigation costs relate to a specific patent infringement suit
    filed against the Company by a competitor on April 14, 2008. The
    Company has filed its answer to the lawsuit asserting affirmative
    defenses of non-infringement, invalidity, failure to mark or give
    notice, unenforceability, and adequate remedy other than
    injunctive relief. Further, in the answer, the Company
    counter-claimed for a declaratory judgment of non-infringement,
    invalidity, and unenforceability for all patents in question plus
    legal fees and costs. Management believes that legal and
    consulting fees incurred in conjunction with this lawsuit should
    be excluded when evaluating core operations since management
    believes these costs are non-recurring and will not be incurred
    once the matter is settled.

 h) Research and development employee recruitment fees relate to a
    core group of engineers hired to begin development of a new
    product design. In the third quarter of 2008, the Company
    incurred recruiting fees and one-time sign-on bonuses for these
    core employees. Management believes that the recruiting fees and
    one-time bonuses incurred for the start-up of this engineering
    design group is non-recurring and should be excluded from its
    results when evaluating the Company's current operations.

 i) Customer evaluation product cost relates to new DDR3 technology
    products that began shipping to customers for qualification in
    the third quarter of 2008. These costs are included as a non-GAAP
    item as management views these expenditures as one-time costs
    incurred to launch a new product line which will benefit future
    periods and are therefore, not indicative of current Company
    performance.

 j) Employee severance relates to one-time costs incurred in the
    termination of a senior management level employee in the third
    quarter of 2008. The Company provides compensation to certain
    employees as an accommodation upon termination of employment.
    Management believes that excluding severance costs from operating
    results provides investors with a better means for measuring
    current Company performance.

 k) The short-term impact of the implementation of the global tax
    restructuring on the Company's effective tax rate is related to
    an increase in the provision for income taxes as the result of
    research and development cost sharing arrangements made between
    the Company and certain of its foreign subsidiaries. The
    short-term impact of these intercompany agreements has resulted
    in research and development expenses being incurred in a foreign
    jurisdiction with a zero tax rate which has resulted in less
    overall tax benefits for the Company in the third quarter of
    2008. However, as new products are being developed and sold in
    foreign jurisdictions, the Company expects to incur future
    profits that will be taxed at a lower rate than in the United
    States, resulting in long-term tax savings that will more than
    offset the short-term increases. Management believes that the
    increase in the Company's effective tax rate is temporary and the
    incremental increase should be excluded when evaluating core
    operations.


                              STEC, INC.
  Schedule Reconciling Non-GAAP Income From Continuing Operations to
                GAAP Income From Continuing Operations
               (in thousands, except per share amounts)
                              (unaudited)

                                        -----------------------------
                                           For the Quarters Ended
                                       Sept. 30,  Sept. 30,   June 30,
                                        -----------------------------
                                         2008       2007       2008
                                        -------    -------    -------
 Net income from continuing operations  $ 1,157    $   506    $ 1,323
                                        =======    =======    =======

 The non-GAAP amounts have been
  adjusted to exclude the following
  items:

 Excluded from cost of sales:
   Malaysia facility start-up costs (a) $ 1,255    $   248    $ 1,647
   Inventory write-down (b)                  --        674         --
   Employee stock compensation (e)           21         --         15
                                        -------    -------    -------
                                          1,276        922      1,662

 Excluded from operating expenses
   Malaysia facility start-up costs (a) $ 1,739    $   648    $ 1,218
   Global tax structuring costs (c)         308        153        253
   First-year Sarbanes-Oxley
    implementation costs (d)                 --         41         --
   Employee stock compensation (e)          689        275        526
   Consumer division sale arbitration
    fees (f)                                 --        868         --
   IP litigation costs (g)                  899         --         --
   Hiring and recruiting fees for key
    R&D employees (h)                       191         --         --
   Customer evaluation product cost (i)     142         --         --
   Employee severance (j)                    45         --         --
                                        -------    -------    -------
                                          5,289      2,907      3,659

 Income tax effect on non-GAAP
  adjustments                             1,994      1,096      1,380
                                        -------    -------    -------

 Net effect of adjustments to GAAP net
  income                                  3,295      1,811      2,279

 Global tax structuring implementation
  short-term income tax impact (k)          485        538        841

                                        -------    -------    -------
 Non-GAAP income from continuing
  operations                            $ 4,937    $ 2,855    $ 4,443
                                        =======    =======    =======

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


                              STEC, INC.
            Schedule Reconciling Reported Financial Ratios
               (in thousands, except per share amounts)
                              (unaudited)

                                        -----------------------------
                                           For the Quarters Ended
                                        -----------------------------
                                       Sept. 30,  Sept. 30,   June 30,
                                         2008       2007       2008
                                        -------    -------    -------
 GAAP gross margin                         32.1%      29.0%      32.3%
 Effect of reconciling item on gross
  margin                                    2.0%       2.1%       3.0%
                                        -------    -------    -------
 Non-GAAP gross margin                     34.1%      31.1%      35.3%
                                        =======    =======    =======


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

                                        -----------------------------
                                           For the Quarters Ended
                                        -----------------------------
                                       Sept. 30,  Sept. 30,   June 30,
                                        -------    -------    -------
                                         2008       2007       2008
                                        -------    -------    -------

 GAAP gross margin                      $20,418    $12,980    $18,170
   Malaysia facility start-up costs (a)   1,255        248      1,647
   Inventory write-down (b)                  --        674         --
   Employee stock compensation (e)           21         --         15
                                        -------    -------    -------
 Non-GAAP gross margin                  $21,694    $13,902    $19,832
                                        =======    =======    =======

 GAAP operating expenses                $18,025    $12,380    $15,117
   Malaysia facility start-up costs (a)  (1,739)      (648)    (1,218)
   Global tax structuring costs (c)        (308)      (153)      (253)
   First-year Sarbanes-Oxley costs (d)       --        (41)        --
   Employee stock compensation (e)         (689)      (275)      (526)
   Consumer division sale arbitration
    fees (f)                                 --       (868)        --
   IP litigation costs (g)                 (899)        --         --
   Hiring and recruiting fees for key
    R&D employees (h)                      (191)        --         --
   Customer evaluation product cost (i)    (142)        --         --
   Employee severance (j)                   (45)        --         --
                                        -------    -------    -------
 Non-GAAP operating expenses            $14,012    $10,395    $13,120
                                        =======    =======    =======

 GAAP operating income                  $ 2,393    $   600    $ 3,053
   Malaysia facility start-up costs (a)   2,994        896      2,865
   Inventory write-down (b)                  --        674         --
   Global tax structuring costs (c)         308        153        253
   First-year Sarbanes-Oxley
    implementation costs (d)                 --         41         --
   Employee stock compensation (e)          710        275        541
   Consumer division sale arbitration
    fees (f)                                 --        868         --
   IP litigation costs (g)                  899         --         --
   Hiring and recruiting fees for key
    R&D employees (h)                       191         --         --
   Customer evaluation product cost (i)     142         --         --
   Employee severance (j)                    45         --         --
                                        -------    -------    -------
 Non-GAAP operating income              $ 7,682    $ 3,507    $ 6,712
                                        =======    =======    =======

 GAAP income from continuing
  operations before provision for
  income taxes                          $ 2,634    $ 1,674    $ 3,473

   Malaysia facility start-up costs (a)   2,994        896      2,865
   Inventory write-down (b)                  --        674         --
   Global tax structuring costs (c)         308        153        253
   First-year Sarbanes-Oxley
    implementation costs (d)                 --         41         --
   Employee stock compensation (e)          710        275        541
   Consumer division sale arbitration
    fees (f)                                 --        868         --
   IP litigation costs (g)                  899         --         --
   Research and development employee
    recruitment fees (h)                    191         --         --
   Customer evaluation product cost (i)     142         --         --
   Employee severance (j)                    45         --         --
                                        -------    -------    -------
 Non-GAAP income from continuing
  operations before provision for
  income taxes                          $ 7,923    $ 4,581    $ 7,132
                                        =======    =======    =======

 GAAP income from continuing
  operations                            $ 1,157    $   506    $ 1,323
   Malaysia facility start-up costs (a)   2,994        896      2,865
   Inventory write-down (b)                  --        674         --
   Global tax structuring costs (c)         308        153        253
   First-year Sarbanes-Oxley
    implementation costs (d)                 --         41         --
   Employee stock compensation (e)          710        275        541
   Consumer division sale arbitration
    fees (f)                                 --        868         --
   IP litigation costs (g)                  899         --         --
   Research and development employee
    recruitment fees (h)                    191         --         --
   Customer evaluation product cost (i)     142         --         --
   Employee severance (j)                    45         --         --
   Global tax structuring short-term
    income tax impact (k)                   485        538        841
   Income tax effect on non-GAAP
    adjustments                          (1,994)    (1,096)    (1,380)
                                        -------    -------    -------
 Non-GAAP income from continuing
  operations                            $ 4,937    $ 2,855    $ 4,443
                                        =======    =======    =======

 GAAP diluted earnings per share from
  continuing operations                 $  0.02    $  0.01    $  0.03
 Impact of non-GAAP adjustments on
  diluted earnings per share            $  0.08    $  0.05    $  0.06
                                        -------    -------    -------
 Non-GAAP diluted earnings per share
  from continuing operations            $  0.10    $  0.06    $  0.09
                                        =======    =======    =======

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

This news release was distributed by GlobeNewswire, www.globenewswire.com

SOURCE: STEC, Inc.

STEC, Inc.
          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.