Liu Capital
Long/short equity, special situations, long-term horizon

Xyratex: High R&D Expense Masking True Value

Xyratex (NASDAQ:XRTX) is a leading provider of data storage technology, including modular solutions for the enterprise data storage industry ("EDS") and hard-disk-drive capital equipment ("HDDCE") for the HDD industry. The company has ~50% market share in the OEM enterprise storage system category. In addition, Xyratex has been utilizing their storage expertise to create a new line of products for the growing high performance computing ("HPC") industry.

The investment thesis is simple and revolves around three key elements:

1) Depressed earnings due to elevated R&D expenses

2) Catalyst 1: Aligned Board and Management with an incentive to maximize value

3) Catalyst 2: Upside surprise from new HPC product line

Depressed Earnings

While Xyratex' revenues have been cyclical (particularly within...

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