INDUSTRY

Rackable Systems has reported a first quarter loss of $10.2 million or 36 cents a share, compared with a year-ago net income of $6 million or 23 cents a share. Revenue for the first quarter was $72.0 million, down 15% from $84.4 million in the first quarter of 2006. The company also said Gautham Sastri, the founder and former CEO of Terrascale, which the company acquired in September 2006, has been promoted to Chief Operating Officer, replacing Todd Ford. Todd Ford will be assuming the title of Executive Vice President and will be responsible for a variety of strategic initiatives until the end of the year. Tom Barton will re-assume the additional role and title of President. GAAP gross margin for the first quarter was 12.5% compared to 23.1% in the same period a year ago. Non-GAAP gross margin for Q1 was 13.5% compared to 23.9% in the same period a year ago. Non-GAAP net loss for the first quarter was $3.6 million or ($0.13) per diluted share, compared to non-GAAP net income of $7.9 million or 30 cents per diluted share in the same period a year ago. “While our first quarter revenue was within the range we provided on our fourth quarter 2006 earnings call, we experienced a challenging quarter from a margin and bottom-line perspective,” said Tom Barton, Chief Executive Officer of Rackable Systems. “As we noted on our April 5th conference call, the key factor affecting our performance during the quarter was aggressive pricing from competitors for orders at our top three accounts. However, we are encouraged by the progress we’ve made over the past thirty days in assessing our long-term business model. These steps include a newly-defined plan for handling business at our largest accounts, a strategy for diversifying our sources of revenue, and a focus on higher gross margin products. We believe we have the right team and strategy in place to stabilize gross margin attainment and improve long-term profitability." Rackable Systems ended the quarter with $170.1 million of cash, cash equivalents and short-term investments compared to $160.5 million as of the end of the year, an increase of $9.6 million. Cash flow from operations for the three months ended March 31, 2007 was $10.4 million compared to cash flow from operations of $3.1 million for the same period a year ago. Q2 Outlook For the second quarter of 2007, the company is projecting revenues between $75 and $85 million.