Rackable Systems


swung to a loss in the third quarter due to acquisition charges, but projected stronger-than-expected sales and earnings for the current quarter.

The Milpitas, Calif., computer maker said it generated $80.5 million in revenue during the third quarter, below Wall Street expectations and at the low end of its own guidance, which pegged revenue between $80 million and $85 million.

While Rackable's third-quarter sales were up 40% year over year, they were down 9% from the second quarter.

Investors hammered the stock in July when Rackable delivered the sequentially-lower third-quarter guidance, sending the company's shares down 39%.

With the mediocre third-quarter already priced into the stock, shares of Rackable edged up nearly 8%, or $2.30 in extended trading Monday, to $31.19.

Rackable competes with


(DELL) - Get Report



(HPQ) - Get Report


Sun Microsystems

(SUNW) - Get Report

selling servers and storage products used by large Internet firms. The company counts





(AMZN) - Get Report

among its customers.

Rackable CEO Tom Barton said that the customer order delay that hurt third-quarter revenue, has been secured for the fourth quarter and was larger than expected. As a result of that order, as well as strong bookings momentum for the past 60 days, Barton said the company now expects to surpass its full year 2006 projections.

Rackable recorded a loss of $389,000, or one penny a share, in the three months ended Sept. 30, due to $3 million in charges for R&D and amortization of intangibles associated with its acquisition of

Terrascale Technologies

, as well as $6.1 million in stock-based compensation expenses. At this time last year, Rackable earned $4.4 million in net income, or 20 cents a share.

Excluding the charges, Rackable said it earned 19 cents a share, a penny shy of Wall Street expectations.

Looking ahead, Rackable projected $100 million to $110 million in fourth-quarter revenue, with EPS of 25 cents to 27 cents excluding certain charges. Analysts polled by Thomson Financial were looking for $94.3 million in fourth-quarter sales with 23 cents EPS.

"We are now actively supplying our products to 9 of the top 20 Internet sites and are on track to deploy to a 10th during the fourth quarter," said CEO Barton.

During the third quarter, Rackable said storage revenue accounted for 16% of total revenue, up from 8% in the year ago period.