SecProbe.io

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Mail Stop 4-6

March 7, 2005

Mr. Thomas K. Barton
Chief Executive Officer
Rackable Systems, Inc.
1933 Milmont Drive
Milpitas, California 95035

Re:	Rackable Systems, Inc.
	Registration Statement on Form S-1 filed February 4, 2005
	File No. 333-122576

Dear Mr. Barton:

      We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments.  If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary.  Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.

      Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects.  We welcome
any questions you may have about our comments or any other aspect
of
our review.   Feel free to call us at the telephone numbers listed
at
the end of this letter.

General

1. We will process your amendments without price ranges.  Since
the
price range triggers a number of disclosure matters, we will need
sufficient time to process the amendment when it is included.
Please
understand that its effect on disclosure throughout the document
may
cause us to raise issues on areas not previously commented upon.

2. We note a number of blank spaces throughout your registration
statement for information that you are not entitled to omit under
Rule 430A.  For example, provide neither the number of shares to
be
offered nor the number of shares to be sold by selling
stockholders
on the cover.  Fill in all blanks throughout the registration
statement prior to effectiveness except for the specific
information
that you are allowed to omit.  Please see Section II.A.7 of
Release
No. 33-6714.  Also, confirm that you have not circulated copies of
the registration statement and will not circulate until you
include
an estimated price range and maximum number of shares, and all
other
information except information you may exclude in reliance upon
Rule
430A.

Inside Front Cover Page

3. We note that your graphic artwork contains narrative text which
includes phrases such as "high-density compute and storage
servers,"
"open architecture approach," "scale out datacenter deployments,"
and
"half-depth design."  Please keep in mind our plain English
principles regarding the use of industry jargon and terms
unfamiliar
to the average investor.  Please refer to Section VIII of our
March
31, 2001 update to our Current Issues and Rulemaking Projects
outline
for additional guidance.  Please also provide us with support for
your statement that your high-capacity storage systems are "low
cost."

Prospectus Summary

4. Please supplementally provide us support for your statement, in
this summary and elsewhere in the prospectus, that you are "a
leading
global provider of high-density compute servers and high-capacity
storage systems."  Additionally expand your disclosure to state
concisely the basis on which the leadership claim is made.  In
your
response tell us how you compare to your competitors in
quantitative
or qualitative terms and consider appropriate disclosure in this
respect.  We note your statement on page 3 that you are "subject
to
intense competition from some of the largest enterprise computing
and
storage companies in the world."

5. We note your list of customers in this section and your more
extensive listing of customers on page 63 of your filing.  Please
disclose the criteria you used to determine which of your
customers
were to be disclosed in the prospectus.  We note that on page 63
you
state that the customers identified represented "large deployments
in
those industries in the first nine months of 2004."  Does "large"
signify the largest deployments for the period or are they samples
from a certain threshold in terms of revenue, servers or something
else?   Further, please explain why the list of customers in your
registration statement is different to some degree from the list
of
customers on your Web site.

6. We note your statement that you are "substantially dependent on
a
small number of customers for a large portion of [y]our revenues"
as
well as your later disclosure suggesting that such customers
change
over time as their requirements become fulfilled.  Please revise
your
statement in this summary to clarify that your dependency is not
on a
small number of recurring customers, but rather significant
customers
in a given period that may not be significant in subsequent
periods
as their needs are fulfilled.

The Offering

7. We note your statement regarding "the conversion and automatic
redemption of all of [y]our preferred stock" as well as your
disclosure on page 91 stating that the Series A preferred stock
will
be converted to Series B preferred stock which in turn will be
redeemed for $1.25 and .7 shares of common stock per one share of
Series B preferred stock.  Please consider clarifying your initial
statement as it appears to suggest that all shares of a class of
preferred stock will be both converted and redeemed for cash and
shares of common stock.

Summary Financial Data

8. Revise your disclosure, under this section or elsewhere in your
filing, to include a presentation of pro forma earnings per share
that reflects the number of shares whose proceeds will be used to
redeem preferred shares or repay debt.  You may present additional
earnings per share data if you consider such information
meaningful.
In either event, provide footnote disclosure that clearly explains
the nature and specific computations of the earnings per share
measures presented.

9. We note that your presentation of the non-GAAP measure,
"Adjusted
EBITDA," includes adjustments for the changes in fair value of
embedded derivatives in preferred stock and amortization of stock-
based compensation.  In light of this disclosure please tell us
how
you have considered the requirements of Item 10(e)(1)(ii)(B) of
Regulation S-K.

10. Currently, your presentation of non-GAAP measures includes a
reconciliation to net income (loss).  This suggests that you
consider
the non-GAAP measures to be performance measures.  However, your
disclosure regarding your reasons for presenting the non-GAAP
measures indicates, in part, that the measures aid investors in
analyzing your ability to generate cash flows.  Revise your
presentation to resolve this apparent inconsistency.
Alternatively,
tell us why you believe a revision is not necessary.

11. Revise the discussion of your non-GAAP measures to include, or
provide a cross-reference to, discussion of the limitations of
these
measures.  See page 46 of your filing.

Risk Factors

12. We note that certain risk factors you have disclosed identify
potential risks resulting from the described uncertainty or cause.
For example, your risk factor on page 10 discusses the possible
risk
of pricing pressure by financially stronger competitors.  Please
review your risk factors in light of this comment and disclose any
material incidence, if any, in which such an event has occurred
and
the actual material effects on your business as a result.

Our products incorporate open standard, commoditized components
and
materials..., pp. 10-11

13. Please consider elaborating on any material relationship with
your suppliers.  Notwithstanding your lack of long-term supply
arrangements, do certain key suppliers provide a significant
volume
of your components and/or work effectively within your just-in-
time
production framework such that the loss of such a supplier would
materially affect your operations?  Any agreements with such
suppliers may need to be filed as exhibits to the registration
statement.  Please see Item 601(b)(10)(ii)(B) of Regulation S-K.

If we fail to maintain or expand our relationships with our
suppliers, we may not have adequate access to new or key
technology..., p. 14

14. We note your statement that you rely heavily on Intel and
Advanced Micro Devices as component suppliers.  In light of the
importance of their components to your products, it appears that
any
agreement with such suppliers would need to be filed as exhibits
to
the registration statement.  Does an agreement govern your
ownership
of the product innovations developed by them at your direction?
Does
your product or business materially depend on any such innovation
owned by you but developed by a supplier?

Our business depends on decisions by potential customers to adopt
our
modular, open standard-based products and to replace their legacy
server systems with our products..., pp. 11-12

15. We note that your servers run on Linux or Microsoft Windows
operating systems.  Do you provide the installation of the
operating
system for your customers as well as the license for Microsoft
Windows?  Provide your analysis as to whether any agreement with
Microsoft is material to your business and would need to be filed
as
an exhibit to your registration statement.  If you believe this is
an
"ordinary course" arrangement, please explain the basis of that
belief in reasonable detail.

16. Please briefly elaborate on the litigation surrounding the
Linux
operating system and how such litigation has the effect of
impeding
adoption of Linux as well as its specific effect on your business.
Do Linux servers represent a significant share of the servers you
sell?

We depend on our Foundation Series computer servers for
substantially
all of our revenues...., p. 14

17. Please clarify here and in your business section whether you
intend the Scale Out Series compute servers to replace your
Foundation Series compute servers.  We note that your first sale
of
the Foundation Series occurred five years ago.  Has the Foundation
Series been superseded or is it being replaced as a product or do
you
plan the Scale Out Series to be another product in your product
line-
up?  Please also specify here or elsewhere in your prospectus,
such
as your management`s discussion and analysis, the percentage of
revenue that the Foundation Series represented for the applicable
financial statement periods.

Maintaining and improving our financial controls and the
requirements
of being a public company may strain our resources, divery
management`s attention and affect our ability to attract and
retain
qualified board members, pp. 16-17

18. Please disclose the measures that you will or have already put
in
place to timely identify and accurately report complex accounting
issues other than those related to equity and derivative
transactions. Additionally disclose whether you will or already
have
implemented your auditors` suggestions or other measures regarding
the reportable material weakness.

Use of Proceeds

19. We note in your management`s discussion and analysis on page
32
that you intend to increase your research and development as well
as
your sales and marketing spending in order to "expand our product
portfolio and add new features to our existing products" and to
"hire
additional sales personnel."  We also note your risk factors on
page
11 discussing your expansion plans.  Further, your cash flow for
the
nine months ended September 30, 2004 is negative.  As a result, it
appears your expansion plans require the use of your proceeds from
this offering.  Do you have a business plan for your use of
proceeds
encompassing your plans for expansion and any other uses?  Please
detail and describe the intended application of the proceeds from
this offering in light of your foregoing expansion plans as well
as
any existing business plan.

20. Please detail the interest rate and maturity date for the
promissory notes in which proceeds from the offering will be used
to
repay.  Please see the Instructions to Item 504 of Regulation S-K.

Management`s Discussion and Analysis of Financial Condition and
Results of Operations

Overview, pp. 29-35

21. Please supplementally inform us and consider providing
disclosure
regarding the reason for the purchase of all of the assets and
assumption of all of the liabilities of Old LLC by GNJ, Inc.
Please
also inform us of the reason for the subsequent merger of Old LLC
into GNJ, Inc. in light of the prior asset and liability transfer.

22. We note your recent introduction of your Scale Out Series
products.  This new product line appears to be a material trend
with
respect to your revenues.  Please provide additional disclosure in
this section regarding the market conditions for the new product
and
management`s views as to the trend towards increasing reliance on
the
new product line and its prospective impact on your financial
condition.  Do you plan to shift sales and marketing resources to
your Scale Out Series from your Foundation Series?  Please note
our
prior comment regarding the Scale Out Series.

23. We note your risk factor discussion on page 12 regarding your
plan to adopt a channel strategy.  This sales strategy appears to
be
a material divergence from your historical reliance on direct
sales.
Please provide additional disclosure regarding your plan to
develop
channel sales and its prospective impact on your business
operations,
capabilities and financial condition.  How will establishing your
channel strategy affect your sales and marketing expenses going
forward and will resources be shifted from your current direct
sales
approach?

24. We note your disclosure on page 31 that your product warranty
is
for one year, but on page 37 you disclose that your product
warranty
period is one to three years.  Please clarify and reconcile these
two
statements.

25. Please elaborate on the relationship with Hewlett-Packard in
which HP acted as a contractual intermediary for your sales to
Microsoft.  Please explain the economic and business consequences
of
the change in your relationship with Microsoft on your operations,
if
any.  Further, in light of the significant amount of revenue
Microsoft and Yahoo! accounted for in 2004, please file your
agreement with Microsoft and/or HP with respect to your sales to
Microsoft as well as your agreement with Yahoo!.  We also note
your
disclosure on page 63 that you expect to contract directly with
Microsoft as well as on page F-22 of a September 2003 agreement
with
Yahoo! for a significant purchase arrangement.  If material, such
agreement may also need to be filed as an exhibit to your
registration statement.  Please see Item 601(b)(10)(ii) of
Regulation
S-K.

26. We note your disclosure that Sanmina-SCI, E-Cycle and Synnex
are
your current contract manufacturers.  Please disclose how much
each
manufacturer contributes to the production of your products.  In
this
regard, the extent of your reliance upon Sanmina`s supply of "the
majority of our finished products" and the extent of reliance on
the
other contractors is unclear.  Given what appears to be
substantial
reliance upon Sanmina and the potential adverse impact of
interruption of supply from that contract manufacturer, it appears
that the contract manufacturing agreement with Sanmina should be
filed as an exhibit.  The terms of the contractual relationship of
that principal supplier should be expanded in the prospectus that
describes your relationships with contract manufacturers.
Depending
on the extent of your reliance upon the other contract
manufacturers
and the potential consequences of interruption in your
relationships
with the other suppliers, it appears, the agreements with them may
need to be filed as exhibits to your registration statement.
Please
see Item 601(b)(10)(ii) of Regulation S-K.

27. The discounts and pricing pressure in your gross profit
discussion appear to be material trends that may benefit from
further
disc