Clone Memory Maker Dataram Hit by Price Declines in Q2 of Fiscal 2011

January 10, 2011 Timothy Prickett Morgan

It is never easy to be a manufacturer of any clone product, and despite the fact that many companies are willing to try a third-party memory or disk maker during a recession to save money, they are nonetheless–or perhaps, muchtheless–in the driver’s seat when it comes to negotiating on prices and clone memory or disk makers often see revenues and profits under pressure in a downturn that, in theory, should boost their business. That’s exactly what happened to Dataram in its most recent quarter.

As you know from reading The Four Hundred, Dataram makes clone memory for a lot of different servers, including entry and midrange memory modules for IBM‘s System i and Power Systems machines. The company bought rival clone memory maker Micro Memory Bank back in April 2009, and has been pushing into the storage market with its XcelaSAN storage area network acceleration appliance.

In the second quarter ended in October 2010, Dataram’s revenues rose by 2.6 percent, to $10.9 million. The loss from operations at the company shrunk to $1.66 million, compared to the second quarter of fiscal 2010’s operating loss of $2.65 million. The company had a tax benefit of just over $1 million in the prior year’s quarter, which helped cushion net losses to $1.62 million in Q2 fiscal 2010; but without that benefit this time around, net losses in Q2 fiscal 2011 came to $1.72 million for Dataram. The company has cut engineering, development, and other costs to try to push back to profitability, but cost of sales rose in the quarter by 7.5 percent, to $8.54 million.

John Freeman, Dataram’s president and chief executive officer, said that revenues were impacted by pricing pressure for both memory and storage products and that gross margins were also hit by this pricing pressure as well as by continued research and development in the XcelaSAN product. Compared to the first quarter of fiscal 2011, average selling prices for memory modules dropped by 13 percent, and Freeman said that the company would be consolidating its memory production facilities before the end of the fiscal 2011 year. “Although we project continued growth in our memory solutions business, these actions should position the memory solutions business to operate profitably at current revenue levels,” said Freeman.

For the first six months of fiscal 2011, Dataram has booked $23.7 million in sales, up 19.3 percent, with a net loss of $2.95 million, compared to $2.59 million in the first half of fiscal 2010. That 2010 figure was cushioned by a $1.67 million income tax benefit.