Xyratex: Fiscal 2Q08 Financial Results

Xyratex Ltd. announced results for the second fiscal quarter ended May 31, 2008. Revenues for the second quarter were $266.5 million, an increase of 25.1% compared to revenues of $213.0 million for the same period last year.

For the second quarter, GAAP net income was $2.2 million, or $0.07 per diluted share, compared to GAAP net income of $2.0 million, or $0.07 per diluted share, in the same period last year. Non-GAAP net income decreased 10.7% to $4.6 million, or a diluted earnings per share of $0.15, compared to non-GAAP net income of $5.1 million, or $0.17 per diluted share, in the same quarter a year ago (1).

Gross profit margin in the second quarter was 15.3%, compared to 17.0% in the same period last year, primarily due to the decrease in Storage Infrastructure revenues.

Revenues from our Networked Storage Solutions (NSS) products were $232.6 million as compared to $169.2 million in the same quarter a year ago, an increase of 37.5%. Gross profit margin in the Networked Storage Solutions business was 14.0% as compared to 14.4% a year ago. Revenues from our Storage Infrastructure products were $33.9 million as compared to $43.9 million in the same quarter a year ago, a decrease of 22.8%. Gross profit margin in the Storage Infrastructure business was 24.9% as compared to 28.0% a year ago.

"I was pleased with our second quarter results. We executed very well, particularly in our NSS division where we had very strong demand from our customers, and revenue exceeded our expectations as customers pulled forward shipments from 3Q to minimize any impacts from the introduction of our new ERP system, which was successfully implemented over the first two weeks of June. As anticipated, we are now seeing evidence of an increase in demand for capital equipment from our customers in Q3 and I am encouraged with regard to the healthy fundamentals we see within the two markets we serve," said Steve Barber, CEO of Xyratex. "Though the global economic conditions remain uncertain, I believe that the storage industry will remain strong and that our customers are well positioned within their respective markets to benefit from this continued growth. We will continue to work with our customers to make them more competitive in their respective markets and remain flexible in meeting their technology and product demands. We remain focused on executing as efficiently and effectively as possible."

Business Highlights

• We announced the appointment of industry veteran, Harold Lehon, as executive vice president and general manager for the Storage Infrastructure Division. Mr. Lehon will lead the company’s Storage Infrastructure Division strategy, specifically in maintaining and expanding the current customer base as well as expanding the division’s reach into other markets.
• We announced the OneStor SP1224s, the second member of the company’s versatile OneStor Extensible Storage Platform (ESP) family. The SP1224s is a 2U, 24-drive storage system based on 2.5-inch drives and provides 85+ percent efficient power conversion. Compared with standard 3.5-inch drives, these small form factor (SFF) drives consume less power with double the performance density, making the OneStor SP1224s ideal for transaction-intensive applications.
• We successfully migrated the company onto the SAP Enterprise Resource Planning system in the first week of June and are on schedule to achieve full operational levels during the quarter. This consolidates the company onto one system which should improve the services we are able to offer our customers and enables the continued growth of the business.

Business Outlook
The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. These statements do not include the potential impact of any future acquisitions or divestitures.

• Revenue in the third quarter of 2008 is projected to be in the range $276 to $296 million.
• Fully diluted earnings per share are anticipated to be between $0.27 and $0.39 on a GAAP basis in the third quarter. On a non-GAAP basis, fully diluted earnings per share is anticipated to be between $0.35 and $0.47. Non-GAAP earnings per share excludes non-cash equity compensation, amortization of intangible assets, certain non-recurring items and related taxation expense.