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Xyratex Zeroes In on Growth, Changes

Xyratex turned in a solid full-year report last night, revealing increased revenues and progress with its OEMs, chiefly Network Appliance. (See Xyratex 4Q Profit Down.) At the same time, lower gross margins and a 30 percent plunge in fourth-quarter net income raised some questions.

Revenues for fiscal 2006 grew 44.7 percent year-on-year to $983.6 million. Non-GAAP net income for the year was up 38.3 percent to $64.9 million, or a diluted earnings per share of $2.17.

Of that, 60 percent came from the sale of network storage solutions, the disk-based systems Xyratex OEMs to NetApp (which accounted for 46 percent of Xyratex revenue in 2006), 3PAR, Compellent, Equallogic, and Rackable Systems, among others. The other 40 percent came from what Xyratex calls storage infrastructure gear, which includes equipment for testing and manufacturing disk drives.

Here the key OEM, Seagate, which accounted for 29 percent of Xyratex revenue in 2006, reduced some orders thanks to the use of some older equipment inherited from its year-ago acquisition of Maxtor. (See Seagate Munches Maxtor.) Analysts believe this could affect storage infrastructure profits for at least a couple of quarters in 2007.

Xyratex's quarterly revenues were $241.1 million, up 18.4 percent year-on-year and down 8.4 percent sequentially. Non-GAAP net income was $10.9 million, or a diluted earnings per share of $0.36, compared to non-GAAP net income of $15.5 million year-on-year -- a 30 percent drop.

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