Xyratex: Fiscal 3Q09 Financial Results

(in US$ millions)	3Q08	3Q09	*Growth*	9 mo. 08	9 mo. 09	*Growth*
Networked storage solutions	213.1	208.6	-2%	633.5	558.6	-12%
Storage infrastructure	67.7	37.7	-44%	130.8	66.3	-49%
Total Revenues	280.8	246.3	-12%	764.3	624.9	-18%
Net income (loss)	7.8	7.8		7.8	(18.0)

Xyratex Ltd announced results for the third fiscal quarter ended August 31, 2009.

Revenues for the third quarter were $246.3 million, a decrease of 12.3% compared to revenues of $280.8 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 $7.8 million, or $0.26 per diluted share, in the same period last year. Non-GAAP net income was $10.7 million, or a diluted earnings per share of $0.36, flat as compared to non-GAAP net income of $10.8 million, or $0.36 per diluted share, in the same quarter a year ago (1).

Gross profit margin in the third quarter was 16.7%, compared to 17.6% in the same period last year. The reduction in overall gross margin resulted from a higher proportion of Networked Storage Solutions revenue in the 2009 quarter.

Revenues from our Networked Storage Solutions products were $208.6 million as compared to $213.1 million in the same quarter a year ago, a decrease of 2.1%. Gross profit margin in the Networked Storage Solutions business was 14.0% as compared to 13.3% a year ago. Revenues from our Storage Infrastructure products were $37.7 million as compared to $67.7 million in the same quarter a year ago, a decrease of 44.3%. Gross profit margin in the Storage Infrastructure business was 32.4% as compared to 31.6% a year ago.

"Our third quarter results reflect the apparent improvement in the overall economy and the operational progress we have made over the last nine months. This has resulted in profit being above our expectations in the quarter and demonstrates our commitment to returning to sustained profitability," said Steve Barber, Xyratex CEO. "I was pleased with our execution along with recent new design wins at a number of our major customers. I remain confident that the storage industry will continue to grow, providing incremental opportunities for our technology."

Comments

Abstracts of the earnings call transcript:

Richard Pearce, CFO:
"Headcount at the end of the August quarter was 1,615 employees, a reduction of 65 employees, or 3.9% over the previous quarter end. Fiscal year to date we have reduced headcount by 264 employees, or 14% overall, in response to the economic situation. We have no current plans for further significant restructuring actions at this time."

Steve Barber, CEO:
"On a year-over-year basis Xyratex grew 58.58% compared to the market's 15.2% growth in shipped capacity in calendar Q2. Sequentially Xyratex posted a 48.4% increase, compared to the market's growth of 8.8%. And we shipped almost half the petabytes of capacity in solid-state devices.

"Our third quarter 2009 shipped capacity was made up of the following in terms of disk drive interfaces: fiber channel, 76.6 petabytes; SATA, 325.64 petabytes; SAS, 13.68 petabytes; and SSDs, 458 terabytes.

"In addition, we have recently been selected by two of our major customers for their next generation of product. Due to the timing of their product announcements, we will not name these customers at this time. For one customer, we've been selected to provide our latest storage sub-system for their next-generation flagship product, transitioning this customer product for our existing 16-drive array to our new one-store 24-drive based storage array. Xyratex successfully won this bid against significant competition based on our leading technology and products and proven execution performance to date in the supply of current products. For the other customer, we have been selected to provide them with the design and supply of an incremental range of data storage products within their future storage portfolio. This is an important win for Xyratex, extending our relationship with this valued customer and was based on our proven product technology and the time-to-market advantage we're able to bring versus the alternative competitive offerings under consideration.

"In addition, we have build a patent media specifically discrete track media, and it is likely to be adopted for volume production in the near term on account of the increasingly clear significant economic challenges involved. The issue for discrete track media adoption is an expected aerial density improvement appears to be inadequate relative to the significant capital and material cost and finishes required for this technology.

"The outlook for 2010 remains somewhat uncertain with some analysts forecasting a possible slowdown in the first half of 2010, after this period of pent-up demand in the second half of 2009, and then a return to normal demand in the second half of 2010."