Feeds

Investors hammer Rackable back near IPO level

All yesterday's parties

Top 5 reasons to deploy VMware with Tegile

Super-volatile shares of Rackable Systems dived more than 18 per cent during Friday's trading after the company disappointed investors with its fourth quarter results.

Rackable notched its first ever $100m quarter with revenue rising 29 per cent to $107m. Investors, however, fixated on Rackable's year-over-year net income dip to $563,000 from $7.6m in 2005. The server maker also posted earnings per share of 2 cents in this fourth quarter versus 33 cents in last year's fourth quarter.

The sell off started the instant Rackable flashed these figures in front of investors. At the time of this report, Rackable's shares have dropped 19 per cent to $16.50. In April of 2006, Rackable enjoyed a high of $56 per share, but it's now drawn much closer to its 2005 IPO of $12 per share.

Rackable did take a few stock options and acquisition related charges, although the primary pressure on its Q4 profits come from sickly gross margins and brute force sales tactics by HP and Dell. CEO Tom Barton complained that rivals were taking losses on major deals to undercut Rackable, making it very tough for the smaller company to remain competitive in some accounts.

"We now believe that the competitive intensity is escalating more rapidly than we anticipated," Barton said.

A spike in DDR1 memory prices also hurt Rackable during the fourth quarter, as did the failure to close a large deal before the end of the quarter.

Rackable has turned blaming memory prices, unclosed deals and competitive pressure into a tradition for explaining poor quarters.

The server start-up gained fame for claiming the scalps of Yahoo!, Microsoft and Amazon - three accounts the Tier 1 server vendors would love to dominate. It has always promised to name new, large customers that will help lend some consistency to Rackable's results, making it less dependent on the Big Three. Such customers have yet to arrive despite Barton's suggestions that Q4 could be a good showcase for new clients.

Full the full year, Rackable showed an impressive 68 per cent rise in revenue to $360m. It also boosted net income to $12m from $9m in 2005.

Management is now looking to a new fleet of storage gear to push margins higher and make Rackable more of a balanced operation.

It exited 2006 with 286 staff - up from 254 in 2005. One notable departure, however, was VP of sales Tom Gallivan. Rackable said painfully little to explain Gallivan's exit, although our sources have disclosed that Gallivan had a very serious disagreement with Rackable's brass. Rackable is still searching for Gallivan's replacement. ®

Choosing a cloud hosting partner with confidence

More from The Register

next story
729 teraflops, 71,000-core Super cost just US$5,500 to build
Cloud doubters, this isn't going to be your best day
Want to STUFF Facebook with blatant ADVERTISING? Fine! But you must PAY
Pony up or push off, Zuck tells social marketeers
Oi, Europe! Tell US feds to GTFO of our servers, say Microsoft and pals
By writing a really angry letter about how it's harming our cloud business, ta
SAVE ME, NASA system builder, from my DEAD WORKSTATION
Anal-retentive hardware nerd in paws-on workstation crisis
Microsoft adds video offering to Office 365. Oh NOES, you'll need Adobe Flash
Lovely presentations... but not on your Flash-hating mobe
Cray heaves out even mightier, Lustre-ous Sonexion 2000
Met Office and Los Alamos bomb boffins are apparently among its fans
prev story

Whitepapers

Why cloud backup?
Combining the latest advancements in disk-based backup with secure, integrated, cloud technologies offer organizations fast and assured recovery of their critical enterprise data.
A strategic approach to identity relationship management
ForgeRock commissioned Forrester to evaluate companies’ IAM practices and requirements when it comes to customer-facing scenarios versus employee-facing ones.
Reg Reader Research: SaaS based Email and Office Productivity Tools
Read this Reg reader report which provides advice and guidance for SMBs towards the use of SaaS based email and Office productivity tools.
Choosing a cloud hosting partner with confidence
Download Choosing a Cloud Hosting Provider with Confidence to learn more about cloud computing - the new opportunities and new security challenges.
New hybrid storage solutions
Tackling data challenges through emerging hybrid storage solutions that enable optimum database performance whilst managing costs and increasingly large data stores.