Rackable Starts Down the Comeback Trail

SAN FRANCISCO -- Remember Rackable Systems(RACK)?

The upstart computer maker shook up the server market a few years ago by catering to the new breed of Web firms, only to see its business hit a wall -- and its stock get left for dead.

With Rackable's stock down roughly 80% from its peak in mid-2006 and its sales growth effectively stalled, CEO Mark Barrenechea is laying the groundwork for a comeback.

Since taking over as chief executive early last year, Barrenechea has refigured products, overhauled senior management and set the company's sights on new markets, all while strengthening the company's balance sheet.

Now Rackable needs to show it can return to growth in a market dominated by heavyweights like IBM(IBM), Hewlett-Packard(HPQ) and Dell(DELL).

And with the financial crisis threatening to choke spending on technology products of all types, Rackable's transformation may be its toughest test of all. "There's no doubt that competition is intense," says Barrenechea, a former Oracle(ORCL) executive. "We're the small guy in the land of giants. So we have to be different."

Rackable made its initial mark by designing servers that were energy efficient. However, being different now means adopting a new mindset about how Rackable does business.

In July, the company began selling customers its Ice Cube mobile data centers with the option of choosing servers from IBM, one of its main rivals in the server market.

According to Barrenechea, IBM makes servers that are well-suited for companies like telecommunications firms, which need redundant power supplies and other beefy hardware features -- a different kind of design than what Rackable offers. Those customers were once out of reach for Rackable. Now, Rackable can at least sell them a data center.