Feeds

Investors hammer Rackable back near IPO level

All yesterday's parties

Designing a Defense for Mobile Applications

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. ®

The Power of One eBook: Top reasons to choose HP BladeSystem

More from The Register

next story
Apple fanbois SCREAM as update BRICKS their Macbook Airs
Ragegasm spills over as firmware upgrade kills machines
Attack of the clones: Oracle's latest Red Hat Linux lookalike arrives
Oracle's Linux boss says Larry's Linux isn't just for Oracle apps anymore
THUD! WD plonks down SIX TERABYTE 'consumer NAS' fatboy
Now that's a LOT of porn or pirated movies. Or, you know, other consumer stuff
EU's top data cops to meet Google, Microsoft et al over 'right to be forgotten'
Plan to hammer out 'coherent' guidelines. Good luck chaps!
US judge: YES, cops or feds so can slurp an ENTIRE Gmail account
Crooks don't have folders labelled 'drug records', opines NY beak
Manic malware Mayhem spreads through Linux, FreeBSD web servers
And how Google could cripple infection rate in a second
FLAPE – the next BIG THING in storage
Find cold data with flash, transmit it from tape
prev story

Whitepapers

Designing a Defense for Mobile Applications
Learn about the various considerations for defending mobile applications - from the application architecture itself to the myriad testing technologies.
How modern custom applications can spur business growth
Learn how to create, deploy and manage custom applications without consuming or expanding the need for scarce, expensive IT resources.
Reducing security risks from open source software
Follow a few strategies and your organization can gain the full benefits of open source and the cloud without compromising the security of your applications.
Boost IT visibility and business value
How building a great service catalog relieves pressure points and demonstrates the value of IT service management.
Consolidation: the foundation for IT and business transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.