Rackable's revenue hit by falling sales

The server maker has reported a fourth-quarter and full-year loss, but says it will invest millions in products and buying back its own stock
Written by Colin Barker, Contributor

Rackable Systems reported a loss of $19.5m in the fourth quarter and an overall drop in quarterly sales of 65 percent.

Fourth-quarter revenue fell to $38.8m (£27m) from $111.3m the previous year, the server maker said on Thursday. In addition to reporting results for the quarter, the company stated its earnings for the full year. For 2008, it made a loss of $54.2m, compared with a loss of $69.6m in 2007. Full-year revenue was $247.4m, down from $350.7m the previous year.

"2008 was a tough year for our industry and for Rackable", Mark Barrenechea, chief executive of Rackable, said in a statement. The company competes against IBM and HP in the datacentre market.

Rackable sells large and mid-range built-to-order rack-mount servers and blade systems for datacentres using standard components. Earlier this month, the company introduced a new line of datacentre systems that it said would offer a low cost alternative to conventional datacentres.

The company said the loss of sales to two of its largest customers, whom it did not name, had had an impact on its results. Between them, the customers accounted for 21 percent of Rackable's sales in 2008. Excluding those two, revenue would have increased by five percent from 2007 to 2008, the company said.

Rackable said that an "increased focus on cost control" during the fourth quarter of 2008 meant it had cut operational expenses by 42 percent, year-on-year. It also cut its workforce by 15 percent in January 2009, which it said would give it a $4m to $5m operational saving.

On Thursday, Rackable also announced that it will start a programme to repurchase up to $40m of the company's stock. In addition, it will spend 10 percent of its cash on expanding its product line and its sales and services, Barrenechea said. "We believe this is an ideal time to invest in Rackable and that these investments will place the company in a stronger competitive position to gain market share as the economy recovers", he said.

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