Rackable Systems (RACK)

Founded in October 1999, Rackable Systems, Inc. (RACK) is a leading provider of high-density compute servers and high-capacity storage systems, based on an open architecture approach, targeted at data center "scale-out" deployments, or the deployment of a large number of inexpensive modular servers. The company's proprietary design allows for greater density of servers as they take less space, which also allows for greater air-flow, resulting in improved thermal management. Other benefits of Rackable System's design are improved remote management, ease of serviceability, and flexible and efficient power distribution. Rackable's servers (including Foundation Series and Scale Out Series) are based on open standard x86 processors from Advanced Micro Devices (AMD) and Intel and run on Windows or Linux operating systems. Due to its low cost, the market for x86 servers is the fastest growing part of the server market, expected to grow shipments by 39% between 2006 and 2010, as per market research firm IDC.

Due to the leveraging of continuing price-performance improvements associated with high-volume components, Rackable has been able to focus its R&D efforts on differentiating the size, energy requirements, and thermal efficiency of its systems. In 2007 services revenue accounted for approximately 2% of revenue and products accounted for 98% of revenue. Within product revenue, servers accounted for 91%, and storage systems accounted for the remaining 9%. The company has since decided to exit its RapidScale storage business as it was not generating adequate volume, leaving Omni Store as its remaining storage device. Rackable has sold products to more than 500 customers, including companies with large Internet businesses, as well as customers with high-performance computing requirements in vertical markets such as semiconductor design, enterprise software, federal government, entertainment, financial services, oil and gas exploration, and biotechnology and pharmaceuticals. To date, virtually all of the company's revenue has come from the United States (94% in 2007) however, the company is working to establish a presence in Ireland (2% in 2007), which should also reduce its effective tax rate, and is focused on growing revenue from China (1% in 2007). Revenue from other regions accounted for the remaining 3% in 2007. The company's top three customers, Microsoft, Amazon and Yahoo! accounted for approximately 36%, 16% and 12% of 2007 revenues. Rackable Systems went public in June 2005. According to Gartner's October 2007 server report, Rackable Systems is the fourth largest x86 server providers in North America. Also, in 2007, it was the fastest growing server provider in North America, outgrowing Sun Microsystems, Dell, Hewlett Packard and IBM on unit percentage basis.

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