Storage Vendor Xyratex Reports Strength In Array Business

Xyratex, the storage industry's top OEM developer of storage systems, on Thursday reported a drop in revenue and earnings for its first fiscal quarter despite having a good quarter for disk-based storage arrays.

Its strong relationship with its largest customer, NetApp, plus a new relationship with Dell, are expected to contribute to growth going forward, company officials said.

The Havant, UK-based vendor said revenue for the first quarter, which ended Feb. 29, were $217.1 million, down 8.2 percent compared to the $236.4 million it reported during the same quarter last year. The company lost $2.2 million, or 7 cents per share, during the quarter, compared to earnings of $10.1 million, or 34 cents per share, last year.

Xyratex has two main businesses.

Its networked storage solutions business, whose OEM customers include NetApp, Sunnyvale, Calif.; IBM Corp. Armonk, NY; Dell, Round Rock, Texas; and a host of tier-two vendors, reported revenue of $187.8 million, up 14.8 percent from the $163.6 million it reported last year.

Revenue for its storage infrastructure business, mainly from selling hard drive production and test equipment to Seagate Technology LLC, Scotts Valley, Calif. and Western Digital Corp., Lake Forest, Calif., fell almost 60 percent to $29.3 million, compared to last year's $72.8 million.

Xyratex's networked storage solutions business grew in terms of capacity shipped, with the total number of petabytes shipped during the quarter rising 59 percent compared to last year, said Steve Barber, CEO during the company's earnings call. For all of 2007, Xyratex shipped about 14 percent of the world's total storage capacity.

NetApp is by far Xyratex's largest customer, accounting for about 72 percent of its networked storage solutions revenue.

A big change for Xyratex during the quarter was a new relationship with Dell thanks to Dell's acquisition of EqualLogic in January for $1.4 billion.

In February, within days of the close, Dell introduced the PS5000 series of storage arrays. The PS5000 series were based on OEM product from Xyratex, giving Xyratex its first business relationship with Dell, Barber said.

Xyratex's business with Dell could grow to embrace other technologies as well, Barber said. "We're as well positioned as we can be," he said. "We were fortuitous in that Dell acquired a company we previously engaged with. We're in dialog with them on other technology."

Xyratex is currently building up inventories of products for its OEM customers in anticipation of possible disruptions from a planned move to a new ERP system in the current quarter, Barber said.

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