Rackable Systems (RACK) 2Q:2008 results

Though revenue was slightly better, gross margins plummeted to the single digits from last quarters mid 20s. The company indicated this was a one-time occurrence and maintained gross margin guidance of 18-21% for the year. They stuck to their full year revenue guidance, too.

They have an outrageous amount of volatility in their model. Last quarter's results seemed to indicate they had stopped seeking low margin business and were content to walk away from business to maintain profitability. This quarter seems to show the exact opposite. IBM, Dell and HP are all targeting the rack server space. The stock at $10 (where its trading pre-opening) is roughly $3 over book so the downside is somewhat limited. Seems like dead money. I keep thinking they make sense as an acquisition for a larger player looking to grow share. Maybe one day I'll be right about that... but not today. Today it gets flogged.