(Xyratex story updated with stock price change and analysts' commentary.)
NEW YORK (TheStreet) -- Shares of data storage company Xyratex (XRTX) are getting slaughtered as investors take profits following the company's better-than-expected second-quarter earnings report and positive third-quarter outlook after the market close on Wednesday.

Xyratex is expecting third-quarter earnings of between 87 cents a share to $1.16 a share on revenue of between $385 million to $435 million, compared with the Wall Street average estimate of 87 cents a share on revenue of $390.63 million.

"Our priorities for the remainder of 2010 include strategic investment in new growth opportunities and securing new customers," Xyratex chief Steve Barber said in a written statement. "We feel we are well-positioned to capitalize on the positive industry dynamics that are creating significant demand for our storage products."

For the second quarter, the company reported net income of $46.8 million, or $1.49 a share, sharply up from a net loss of $6.6 million, or 22 cents a share a year ago, while revenues were $455.9 million, also up significantly, compared with revenues of $194.7 million the same period last year; this, as revenues from Xyratex's networked storage solutions products increased 86.6%.

Analysts, on average, were expecting earnings of $1.35 on revenue of $430.33 million.

Xyratex stock has been plunging 8.6% to $12.94 in midday trading. Earlier, it was falling 13.1% to $12.30.

Meanwhile, shares of rival Dot Hill Systems ( HILL) has risen 2.5% to $1.22.

Glenn Hanus, an analyst at Needham & Company, said "I'm a little surprised to see it getting punished as much as it is." Hanus said there's no obvious reason for the way the stock is being treated Thursday, given that the company executed well in the last quarter.

Hanus said that given that we're currently in a "sell first, ask questions later," type of market these days, it's possible that investors could be focusing on the fact that Xyratex mentioned during its conference call some deferrals from HDD customers, which are "sort of a little confirmation of some softness out there in capex spending -- in drive land."

Still, " Hitachi's was an incremental positive; it was announced ahead of schedule and made up for the other customer deferrals," Hanus maintained.

Echoing Hanus' view is Stifel Nicolaus analyst Aaron Rakers, who thinks these Xyratex investors' trading action Thursday has been "sharply overdone."

Rakers says he believes investors are being overly concerned that the largest customers of the company's key storage infrastructure business -- Western Digital ( WDC) and Seagate Technology ( STX) -- will pull back on capital investments, which would negatively impact Xyratex.

-- Reported by Andrea Tse in New York

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