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Monday, October 30, 2006

Rackable Avoids Getting Racked

After seeing the headlines come across on Rackable Systems (RACK), it seemed the stock should itself have gotten racked. But the company's guidance and large short interest helped it trade up after-hours.

RACK posted EPS $0.19 and revenues of $80.5 Million, versus estimates at $0.20 and $84.6 million.

The guidance for Q4 and for 2007 saved the company. Next quarter Revenue is projected to be in the range of $100 - $110 million and EPS at $0.25 to $0.27, compared to $94.3 million and $0.23 estimates. Fiscal 2007 Revenue is projected to be in the range of $475 to $525 million on EPS of $1.28 to $1.40, versus $455 million and $1.28 estimates.

Third quarter gross margin was negatively impacted by rapid price increases in component pricing, specifically DDR memory. The company expects gross margins to improve in the fourth quarter and for the full year 2007.

RACK shares traded up 6% to $30.85 in after-hours trading, and it closed up 2% to $28.89 in regular trading ahead of earnings. RACK's 52-week trading range was noted as $13.80 to $56.00. Some 20.5% of its float, or 5.649 million shares, are listed in the short interest for October.

Jon C. Ogg
October 30, 2006.
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