Xyratex: Fiscal 3Q08 Financial Results

(in US$ millions)	3Q07	3Q08	9 mo. 07	9 mo. 08
Revenues	234.2	280.8	683.6	764.3
*Growth*		+20%		*+12%*
Net income (loss)	4.3	7.8	16.4	7.8

Xyratex Ltd announced results for the third fiscal quarter ended August 31, 2008. Revenues for the third quarter were $280.8 million, an increase of 19.9% compared to revenues of $234.2 million for the same period last year.

For the third quarter, GAAP net income was $7.8 million, or $0.26 per diluted share, compared to GAAP net income of $4.3 million, or $0.14 per diluted share, in the same period last year. Non-GAAP net income increased 45% to $10.8 million, or a diluted earnings per share of $0.36, compared to non-GAAP net income of $7.4 million, or $0.25 per diluted share, in the same quarter a year ago (1).

Gross profit margin in the third quarter was 17.6%, compared to 17.9% in the same period last year.

Revenues from our Networked Storage Solutions products were $213.1 million as compared to $174 million in the same quarter a year ago, an increase of 22.5%. Gross profit margin in the Networked Storage Solutions business was 13.3% as compared to 14.9% a year ago, primarily due to the one-time direct labor costs associated with the implementation of our new SAP ERP system. Revenues from our Storage Infrastructure products were $67.7 million as compared to $60.2 million in the same quarter a year ago, an increase of 12.4%. Gross profit margin in the Storage Infrastructure business was 31.6% as compared to 27.2% a year ago, primarily as a result of variation in product mix.

"Our third quarter results were satisfactory in the context of the challenging economic climate and the cautious spending displayed by some of our larger customers. I was pleased with our execution and remain confident that the storage industry will continue to grow. As we enter our fourth quarter and near term planning, we do so with some caution due to the current uncertainty in the global economy. We will however continue to work towards maximizing our flexibility in order to best support our customers through these challenging times", said Steve Barber, CEO of Xyratex.

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 fourth quarter of 2008 is projected to be in the range $287 to $307 million.
Fully diluted earnings per share are anticipated to be between $0.24 and $0.36 on a GAAP basis in the fourth quarter. On a non-GAAP basis, fully diluted earnings per share is anticipated to be between $0.32 and $0.44. Non- GAAP earnings per share excludes non-cash equity compensation, amortization of intangible assets, certain non-recurring items and related taxation expense.

Comments

To read the Xyratex 3FQ08 earnings call transcript

Some abstracts:
" (...) we are working with NetApp our largest NSS customer to establish a second source for a proportion of our products in order to provide supply continuity protection. This is likely to be based on a licensing agreement which would result in a reduction in revenue associated with this program. In the medium term up to a maximum of 25% of total product demand may be outsourced to a third party contract manufacturer. This arrangement will provide ability for our customer to accommodate unforeseen outside demand.

"We continue to be a major participant in the rapidly growing data storage market. We shipped 330.9 terabytes of external storage in our fiscal second quarter representing a 10.1% growth over the prior quarter and 83.1% growth over a year ago.

"Our 3Q shipped capacity was made up of the following in terms of disk drive interface: FC totaled 86.12 terabytes or 27.4% of the total, SATA totaled $217.44 terabytes or 69.3% of the total. And SAS totaled 10.29 terabytes. While SAS only comprised 3.3% of the total shipped capacity in the quarter, we are continuing to see strong growth and demand for this interface"