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Network Engines, Inc (NENG) Announces 88% Increase in Q2 Revenues

Network Engines, Inc, provider of server appliance products and services for storage, security and communications software vendors, today reported its financial results for the second quarter ended March 31, 2008. The company posted a positive second-quarter performance and projected increases for the third quarter of 2008.

Net revenues rose 88 percent to $55.2 million, up from $29.3 million in the second quarter last year, following previous guidance of $54 million to $58 million. The company attributes the increase to its acquisition of Alliance Systems Inc. in October 2007. Gross profit fell short of the 17-18 percent expected, posting at 16.1 percent as compared to 20.8 percent in the second quarter of 2007.

“During the second fiscal quarter, we made good progress in important areas of our business and reported revenues in line with our expectations,” Greg Shortell, president and CEO of NEI stated in the press release. “However, we saw many customers place orders at the low end of their forecasts as they experienced instances of delayed buying decisions and deferred purchases from their customers, which we believe are tied to a difficult macro economic environment. In addition, our gross margin was below our expectations primarily related to lower average sell prices based on customer and product mix.”

NEI added 11 new appliance design wins during the second quarter, pushing the company past its goal of 20 design wins for the first half of the year. Additionally, the company anticipates rising numbers for the third quarter ended June 30, 2008.

“While we are very cautious regarding a continued challenging economy, we are also optimistic about the long-term success of our business due to the strength of our value proposition to customers, larger scale, broader capabilities, and value added services. Particularly in difficult times, an appliance strategy that lowers the total cost of ownership for users becomes increasingly compelling for independent software vendors, especially when it can help them reduce costs through outsourcing. Moving forward, our core strategy remains focused on growing and diversifying revenue by expanding our customer base, developing innovative services and technical capabilities for customers, and carefully managing expenses to maximize profitability,” stated Shortell.

“Our expectations for revenue performance are based on forecasts and historical trends we see in our indirect model and reflect the potential effects of the economic environment,” Doug Bryant, NEI CFO stated. “Our gross margins for the third quarter are expected to be lower than our second quarter primarily due to anticipated revenue volume and customer mix. We will continue our work to identify areas for cost savings related to expense controls and operational efficiencies to enable us to effectively manage our business.”

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