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Are storage vendors overcharging for SSDs?

The CEO of solid state drive (SSD) manufacturer STEC said storage vendors are charging customers too much for SSDs.

STEC CEO Manouch Moshayedi said during the vendor’s earnings call Tuesday that the largest storage vendors – STEC’s OEM partners – are marking up SSDs from around $2 per gigabyte to $4 gigabyte to around $50 per gigabyte to $70 per gigabyte, and that is slowing the adoption of SSDs in enterprise storage.

“Frankly, from where I see it, the pricing that they’re charging is a little unsustainable on the SSD side because its 30 times what is out there available [from the SSD manufacturers],” Moshayedi said. “I think that pricing has to come down in order to really get SSDs out into the market through the major data storage system builders.”

He said SSDs are being more widely adopted by cloud computing service providers and data centers that use one SSD per server because they are getting flash at a lower price than by buying it in storage arrays.

“So when you look at it, it’s a big price differential [between what storage vendors pay and what they charge customers],” he said. “Therefore people in data centers that don’t have to buy big data storage systems can use SSDs a lot more than data storage [users] can.”

EMC, IBM, Hitachi Data Systems and Hewlett-Packard all sell STEC SSDs in storage arrays.

STEC has a lot more to worry about than its partners’ pricing these days. The vendor’s second quarter revenue of $40.7 million was less than half of the $82.5 million in revenue from the same quarter last year. Revenue also dropped 19.2% between the first and second quarters this year. STEC lost $50 million, marking its third straight quarter in the red.

Moshayedi blamed STEC’s problems on its transition to next-generation SSD drives as well as new PCIe SSD cards and EnhanceIO caching software. Its largest storage vendor partners are still qualifying those products. The near-term outlook isn’t rosy with the forecast calling for revenue of $40 million to $42 million and another big loss this quarter.

On top of that, the Securities and Exchange Commission (SEC) has charged Moshayedi with insider trading. The SEC claims Moshayedi and his brother  Mark — a STEC founder — failed to disclose information that could have lowered the stock price at the time they were selling shares that brought them $134 million.

Moshayedi called those allegations “unsubstantiated” during the Tuesday call. “I intend to vigorously defend myself against unsubstantiated allegations, and we expect that through an independent evaluation of facts we’ll find the complaint is without merit,” he said.

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