What’s Up With Xyratex?

Xyratex (XRTX), a provider of storage subsystems, doesn’t get the same kind of ink that’s spilled on the larger and better-known players in the IT storage sector like Brocade (BRCD), NetApp (NTAP) and EMC (EMC). But it sure is a hot stock: the shares are are up  14% today, 36% for the month to date, and a gaudy 550% since bottoming at just under $2 in February.

One reason for the move: Xyratex recently posted much-better-than-expected profits for its fiscal third quarter ended August 31; the company managed to surprise the Street, even after it had raised revenue guidance just three weeks earlier.

I can think of two potential reasons for today’s move. One, perhaps there is takeover speculation: Brocade clearly seems to be in play, and as my colleague Mark Veverka wrote in last week’s print edition of Barron’s, NetApp concedes that at some point it also might be acquired. Xyratex is substantially smaller; with a market cap of just under $400 million, it would be a lot easier to digest than NetApp, Brocade or EMC. So seeing speculation in XRTX shares would hardly be surprising.

A second factor is that XRTX generates more than half of its revenue from one company: NetApp, which as it happens had a meeting today with analysts, at which it provided guidance for the next two quarters that was ahead of Street expectations. You could argue that that what’s good for NetApp is simply good for Xyratex. Or alternatively, you could theorize that the obvious buyer for XRTX would be - you guessed it - NetApp.

Whatever the reason, XRTX today is up $1.59, or 14%, to $12.95.