The problem? A major inventory carryover at EMC (EMC), STEC’s largest customer.
Let this blowup be a lesson to you, because it’s one I’ve learned through the loss of my own dollars and the wrath of my readers:
Customer concentration is a major, major investment risk, particularly for commodity-type technology companies.
EMC went from being 15% of STEC revenues in 2008 to 45% of revenues in 2009. 15% is extremely high; 45% is simply off the charts in terms of risk. And you can’t say you weren’t warned – this number was 38% in the third quarter of 2009.
In a situation like this, you have a major customer holding 100% of the cards at the bargaining table, and a vendor that’s one contract loss away from a financial catastrophe. Don’t get on the wrong side of the table – bet on the companies with leverage over suppliers, like Apple (AAPL).
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