Rackable: No Revenue from Containers in 2008

The interior of one of Rackable's ICE Cube containers.

In January 2008, executives at Rackable Systems (RACK) predicted that 2008 will be a “breakthrough year for containerized data centers” and projected that the company would deploy at least 20 of its ICE Cube portables by year-end, and perhaps as many as 50.

The reality was brutally different, as the company acknowledged yesterday. “Part of our disappointing news is that we haven’t recognized any revenue for the ICE Cube in 2008,” said Rackable CEO Mark Barrenechea, who cited delays in “large-scale data center construction projects.”

That’s clearly a reference to recent project delays by Microsoft, which has effectively halted work on its massive Chicago data center, which is positioned to become the world’s first major “container farm.” Microsoft had planned to use as many as 200 40-foot shipping containers pre-packed with servers.

Microsoft, Yahoo Slash Server Spending

Rackable Systems (RACK) said yesterday that Microsoft and Yahoo spent $114 million less on the company’s servers and storage products in 2008 than they did in 2007, with the brunt of that decline coming in the fourth quarter. Rackable’s revenue for the fourth quarter was $38.8 million compared to $111.3 million in the same quarter in 2007.

Microsoft slashed its capital spending on data centers by $300 million in October, citing the impact of the U.S. economic crisis, and last month said that it would lay off 1,500 workers, halt one major data center project and slow construction on two others. Yahoo has also been focused on cost-cutting, announcing a 10 percent staff reduction in December amid a broader restructuring that brought in a new CEO, Carol Bartz.

Rackable’s business has been highly concentrated among the largest Internet companies. Orders from Microsoft (MSFT), Yahoo (YHOO) and Amazon (AMZN)  accounted for 65 percent of the company’s revenues during the second quarter of 2008. In October Rackable slashed its revenue guidance for the year, citing an “abrupt slowdown” in corporate purchasing.

New Rackable Server Targets Cloud Economics

A diagram of a Rackable MicroSlice server tray.

Can racks filled with micro-servers provide the benefits of virtualization at a lower price point? Rackable Systems (RACK) today disclosed a new server architecture that can pack up to 264 low-power, low-cost ”MicroSlice” servers in a cabinet.

Rackable says that creating a large number of physically independent compute nodes – an approach it calls “physicalization” - can be more cost effective than virtualization in scaling large cloud computing platforms. The company says many MicroSlice configurations will start at below $500.

The MicroSlice architecture places up to six AMD server boards and six 2.5 inch drives in a 1U Cloudrack tray with a single central power supply and 8 port internal switch. Each board is less than 7 inches wide, and uses as little as 72 watts of power.      

“The new MicroSlice architecture is radical; we eliminated the need for virtualization software and set new density standards with 264 servers per cabinet,” said Mark Barrenechea, president and CEO of Rackable Systems. “Our MicroSlice-enabled products are timely in this economic climate, allowing data center budgets to go twice as far.”

Rackable Cuts Staff, Lowers Guidance

Server vendor Rackable Systems, Inc. (RACK) has laid off 15 percent of its workforce and sharply lowered financial projections for fiscal year 2009, citing the impact of the weaker economy. Rackable now projects full year revenue of $245 million to $250 million, a sharp reduction from its previous forecast of $275 million to $300 million,

“Rackable Systems was adversely impacted by the economic turmoil during the fourth quarter,” said Mark Barrenechea, president and CEO of Rackable Systems, in a statement Tuesday. “However, we are acting quickly and decisively to match expenses to revenues, including having reduced our work force by 15 percent this month. We have also repurposed investment dollars to increase our commitment to engineering and new products. Our cost control and working capital actions resulted in strong inventory controls and cash management, despite a challenging quarter.

“We continue to protect our strong balance sheet, manage our working capital, and be debt-free,” he added.. “For the long-term, we are innovating to win and our new products are being well received.”

MobiRack: Rackable Looks Beyond Data Center

It’s not just Internet users that are becoming more mobile. it’s happening with Internet infrastructure as well. The mobility movement that began with data center containers is breeding new form factors to move servers and storage outside the data center.

Rackable Systems (RACK) today introduced MobiRack, an enclosure in a light-weight plastic case that contains servers, storage, networking, UPS and DC power distribution in one unit. MobiRack is more lightweight than a shipping container, but Rackable says it will protect equipment in “the most challenging environments.”

“MobiRack truly frees users from the deployment limitations of fixed ‘brick and mortar’ data centers, and is ideal for fast HPC deployment, a small office data center, mobile trade shows and events, and in disaster recovery and military environments,” said Mark Barrenechea, president & CEO of Rackable Systems.

Rackable says MobiRack can support computing requirements in emergency response situations in disaster areas, scientific and engineering exploration projects, major events and trade shows and a wide range of military applications.

Rackable Launches Equipment Leasing Program

Rackable Systems (RACK) has launched a leasing program to provide customers with more options to finance IT equipment purchases. Vendor leasing programs have become more important as the credit crunch has left many companies with reduced access to financing.

“During this turbulent economic period, companies are looking for alternative ways to maximize their IT expenditures and reduce their initial buying costs,” said Tony Carrozza, senior vice president of worldwide sales and marketing at Rackable Systems. “Our new Rackable Equipment Leasing program allows companies to better manage their cash flow, operate with the latest technology, eliminate overhead, and reduce ownership tax and benefit from a flexible ownership agreement.”

Lending terms used to finance IT equipment have tightened in recent months as default rates have increased. Activity in the $650 billion equipment finance sector dropped 2.4 percent in September, according to the Equipment Leasing and Finance Association, with 0.86% of equipment loans written off as losses, up from 0.48% a year earlier.

“Through 2010, IT organizations will increasingly rely on leasing and financing programs to close the funding gap for necessary acquisitions,” said Joe Pucciarelli, IDC Program Director – Technology Financing and Executive Strategies. “IDC research projects that more than 15 percent of IT equipment delivered in the U.S. during 2008 will be leased or financed, with that percentage growing in 2009 and 2010.”

Rackable C2005 Server Demo

Rackable Systems (RACK) was showcasing its C2005 server at last week’s Gartner Data Center Conference. The C2005 is designed for greater flexibility and configurability than the Rackable’s previous server models. In this video, Rackable director of marketing George Skaff provides an overview of the C2005 and its uses and features. This video runs about 2 minutes, 30 seconds.

For more news from Rackable, check out our Rackable Channel. For additional video, check out our DCK video archive and the Data Center Videos channel on YouTube.

Rackable Plans Air-Cooled Version of Container

The interior of the Rackable ICE Cube container.

Rackable Systems (RACK) says it plans to introduce an air-cooled version of its ICE Cube data center container in the first quarter of 2009, hoping to expand the market for its portable data center.

In the company’s third-quarter earnings call, CEO Mark Barrenechea said Rackable didn’t sell any ICE Cube units in the third quarter, but has purchase orders for about $16 million in containers for delivery during the fourth quarter. Barrenechea said that “adoption is beginning now” for the ICE Cube with the 4Q orders, which are likely related to a federal government container contract announced earlier this year.

“Our goals certainly were $20 million to $50 million revenue related to the ICE Cubes (for 2008) and at this point we’re sort of anticipating being on the lower end of that range,” Barrenechea said in Monday’s earnings call with analysts.

A Closer Look At Rackable’s CloudRack

Hey, that server’s naked! Rackable’s new CloudRack has no top covers on its server trays. Leaving the metal “skin” off the top of the tray provides several advantages , making the rack considerably lighter and providing quicker access for maintenance. The photo below provides a full view of the individual server trays, which contain no fans, which have been built into the rear of the cabinet to make more room for storage drives.