Feeds

Investors hammer Rackable back near IPO level

All yesterday's parties

High performance access to file storage

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. ®

High performance access to file storage

More from The Register

next story
Seagate brings out 6TB HDD, did not need NO STEENKIN' SHINGLES
Or helium filling either, according to reports
European Court of Justice rips up Data Retention Directive
Rules 'interfering' measure to be 'invalid'
Dropbox defends fantastically badly timed Condoleezza Rice appointment
'Nothing is going to change with Dr. Rice's appointment,' file sharer promises
Cisco reps flog Whiptail's Invicta arrays against EMC and Pure
Storage reseller report reveals who's selling what
Bored with trading oil and gold? Why not flog some CLOUD servers?
Chicago Mercantile Exchange plans cloud spot exchange
This time it's 'Personal': new Office 365 sub covers just two devices
Redmond also brings Office into Google's back yard
Just what could be inside Dropbox's new 'Home For Life'?
Biz apps, messaging, photos, email, more storage – sorry, did you think there would be cake?
IT bods: How long does it take YOU to train up on new tech?
I'll leave my arrays to do the hard work, if you don't mind
prev story

Whitepapers

Securing web applications made simple and scalable
In this whitepaper learn how automated security testing can provide a simple and scalable way to protect your web applications.
Five 3D headsets to be won!
We were so impressed by the Durovis Dive headset we’ve asked the company to give some away to Reg readers.
HP ArcSight ESM solution helps Finansbank
Based on their experience using HP ArcSight Enterprise Security Manager for IT security operations, Finansbank moved to HP ArcSight ESM for fraud management.
The benefits of software based PBX
Why you should break free from your proprietary PBX and how to leverage your existing server hardware.
Mobile application security study
Download this report to see the alarming realities regarding the sheer number of applications vulnerable to attack, as well as the most common and easily addressable vulnerability errors.