Feeds

Investors hammer Rackable back near IPO level

All yesterday's parties

Protecting against web application threats using SSL

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
Wanna keep your data for 1,000 YEARS? No? Hard luck, HDS wants you to anyway
Combine Blu-ray and M-DISC and you get this monster
US boffins demo 'twisted radio' mux
OAM takes wireless signals to 32 Gbps
Google+ GOING, GOING ... ? Newbie Gmailers no longer forced into mandatory ID slurp
Mountain View distances itself from lame 'network thingy'
Apple flops out 2FA for iCloud in bid to stop future nude selfie leaks
Millions of 4chan users howl with laughter as Cupertino slams stable door
Students playing with impressive racks? Yes, it's cluster comp time
The most comprehensive coverage the world has ever seen. Ever
Run little spreadsheet, run! IBM's Watson is coming to gobble you up
Big Blue's big super's big appetite for big data in big clouds for big analytics
Seagate's triple-headed Cerberus could SAVE the DISK WORLD
... and possibly bring us even more HAMR time. Yay!
prev story

Whitepapers

Secure remote control for conventional and virtual desktops
Balancing user privacy and privileged access, in accordance with compliance frameworks and legislation. Evaluating any potential remote control choice.
WIN a very cool portable ZX Spectrum
Win a one-off portable Spectrum built by legendary hardware hacker Ben Heck
Storage capacity and performance optimization at Mizuno USA
Mizuno USA turn to Tegile storage technology to solve both their SAN and backup issues.
High Performance for All
While HPC is not new, it has traditionally been seen as a specialist area – is it now geared up to meet more mainstream requirements?
The next step in data security
With recent increased privacy concerns and computers becoming more powerful, the chance of hackers being able to crack smaller-sized RSA keys increases.