Feeds

Wall Street grossed out by Rackable's dwindling margins

Feeling the competitive strain

Boost IT visibility and business value

Shares of Rackable Systems began an all too familiar downward march, following a first quarter profit and gross margins warning.

Well, profit isn't the best word to use since Rackable revealed that it will likely report a first quarter loss for the period that closed March 31. The loss stands as just one item in a long list of negative factors hurting the company during the quarter, including a large order cancellation, intense pricing pressure and severance costs.

The end result? Rackable expects gross margins for Q1 to come in a whopping 30 per cent lower than expected. The server and storage seller has seen gross margins hover around 21 per cent and earlier predicted Fiscal 2007 gross margins between 17 per cent and 21 per cent. The Q1 gross margins were once meant to come in "at the low end" of the Fiscal 2007 range, according to a spokeswoman, and will now come in even lower.

"Intense competitive conditions for business at our largest customers continued throughout the first quarter of 2007, which negatively impacted our gross margin and bottom line," said Tom Barton, Rackable's CEO.

A couple weeks back, we called Rackable after hearing rumors of layoffs. The company handed us a fat “no comment” at the time but has since confirmed the firings. It noted “severance charges related to an internal reorganization.” hurt the recent quarter.

Rackable expects first quarter revenue between $70m to $75m.

It's highly dependent on business from three, major customers – Microsoft, Yahoo! and Amazon.com. With that in mind, Rackable has worked for months to bring on a more diverse client base.

In the meantime, the likes of Dell, HP and Sun Microsystems have taken aim at Rackable's server business, arming systems and services for larger internet companies that buy systems 10,000 units at a time.

Rackable's constant revenue, profit and gross margins gyrations prove overwhelming for investors. The company's stock bounces around like a scantily clad lass at a Hustler Club opening. At last check, Rackable's shares tumbled 8 per cent on today's news. ®

Maximizing your infrastructure through virtualization

More from The Register

next story
Stick a 4K in them: Super high-res TVs are DONE
4,000 pixels is niche now... Don't say we didn't warn you
BBC goes offline in MASSIVE COCKUP: Stephen Fry partly muzzled
Auntie tight-lipped as major outage rolls on
Philip K Dick 'Nazi alternate reality' story to be made into TV series
Amazon Studios, Ridley Scott firm to produce The Man in the High Castle
iPad? More like iFAD: We reveal why Apple fell into IBM's arms
But never fear fanbois, you're still lapping up iPhones, Macs
Bose says today is F*** With Dre Day: Beats sued in patent battle
Music gear giant seeks some of that sweet, sweet Apple pie
There's NOTHING on TV in Europe – American video DOMINATES
Even France's mega subsidies don't stop US content onslaught
You! Pirate! Stop pirating, or we shall admonish you politely. Repeatedly, if necessary
And we shall go about telling people you smell. No, not really
Too many IT conferences to cover? MICROSOFT to the RESCUE!
Yet more word of cuts emerges from Redmond
Joe Average isn't worth $10 a year to Mark Zuckerberg
The Social Network deflates the PC resurgence with mobile-only usage prediction
prev story

Whitepapers

Implementing global e-invoicing with guaranteed legal certainty
Explaining the role local tax compliance plays in successful supply chain management and e-business and how leading global brands are addressing this.
Consolidation: The Foundation for IT Business Transformation
In this whitepaper learn how effective consolidation of IT and business resources can enable multiple, meaningful business benefits.
Application security programs and practises
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.
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.
Securing Web Applications Made Simple and Scalable
Learn how automated security testing can provide a simple and scalable way to protect your web applications.