Rackable Ripped by Economy's Crunch
10/13/08 - 06:05 PM EDT
Alexei Oreskovic
The financial crisis has claimed one of its first victims in the tech sector.
On Monday, computer maker Rackable Systems(RACK Quote - Cramer on RACK - Stock Picks) warned Wall Street that its financial performance will be significantly lower than it previously expected due to the "abrupt financial and economic deterioration." The Fremont, Calif., company, which makes servers used by corporations, cut its full-year sales outlook by as much as 22% and projected a steep loss -- even after backing out one-time items like writedowns and restructuring charges. "The recent market downturn has been dramatic and has greatly impacted the timing of our customers' buying decisions," said CEO Mark Barrenechea in a statement Monday. "The swift decline of the economy caused a demonstrable slowdown in corporate purchasing as we entered September." Shares of Rackable plunged 19.9%, or $1.74, to $7 in extended trading Monday. The sales shortfall is the latest blow to Rackable, which has been struggling to mount a comeback under Barrenechea. The company faces intense competition from IBM(IBM Quote - Cramer on IBM - Stock Picks), Hewlett-Packard(HPQ Quote - Cramer on HPQ - Stock Picks) and other server makers who have laid siege to Rackable's stable of high-profile customers, which includes Web heavyweights like Amazon(AMZN Quote - Cramer on AMZN - Stock Picks) and Yahoo!(YHOO Quote - Cramer on YHOO - Stock Picks). In August, the company missed Wall Street's second-quarter financial expectations after it was forced to cut prices in order to prevent one of its accounts from defecting to a rival. The company said Tuesday that it acquired 25 new customers in the third quarter, and noted that new products are slated for release in the fourth quarter.
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