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Rackable Systems Misses Estimates

SAN FRANCISCO -- Rackable Systems (RACK) posted a deeper-than-expected loss in the second quarter, as component shortages and price discounts the company made to win a contract, weighed on results.

The Freemont, Calif., computer maker had sales of $76 million in the second quarter, in line with analyst estimates, and down from $82 million at this time last year.

Rackable also re-affirmed its sales outlook for the full fiscal 2008 year, noting that its new products and trends among its Internet customers bode well for the second half of the year.

But the company's gross profit margin took a significant step backward in the second quarter, falling to 9.2% vs. 23.5% in the first quarter. The culprit: unspecified component shortages, which drove up Rackable's cost of goods sold, as well as an unspecified new contract.

"The company won an important opportunity at lower pricing, which we believe will put us in an advantageous position for more profitable, long term opportunities," the company said in a statement.

Shares of Rackable were off 12%, or $1.95, at $11.05 in extended trading Monday.

Rackable, which makes servers used by corporations and other large organizations, competes with tech giants including IBM (IBM), Hewlett-Packard (HPQ) and Dell (DELL).

Rackable listed a new contract with the U.S. federal government, as well as new business in Japan, among the second quarter's business highlights, although it did not specify whether the deals were related to the price discounts.

Rackable said it lost $27.9 million, or 95 cents a share, in the three months ended June 28, compared with a loss of $40.4 million, or $1.42 a share, at this time last year.

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