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Charges Wrack Rackable

The data storage systems maker now sees a first-quarter loss on higher expenses.

Updated from April 4

Rackable Systems


late Wednesday said it would post a net loss in its first quarter because of fierce competition in the company's largest accounts.

The Milpitas, Calif., server maker said gross margins for the quarter will be 30% lower than its previous expectations.

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Shares of Rackable tumbled 8.2%, or $1.38, to $15.50 in extended trading Wednesday on the news. Shares continued their downward spiral Thursday, falling an additional 7% to $14.31 midday.

Rackable said that operating expenses will be higher than anticipated because of "one-time charges associated with the cancellation of an order from a customer, severance charges stemming from an internal reorganization completed in January as well as additional charges relating to sales and use tax exposures from past sales to various customers."

Rackable said it still expected to meet its previous revenue guidance of $70 million to $75 million for the quarter ended March 31.

Analysts polled by Thomson Financial were expecting Rackable to earn 5 cents a share on sales of $73.7 million.

"While we were faced with significant challenges in the first quarter, we remain optimistic that our position with our top customers is strong," CEO Tom Barton said in a statement.

Barton said Rackable won the bulk of the opportunities it bid on in the first quarter, adding that the company is committed to stabilizing and improving the predictability of its gross margin attainment in its largest customers.