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Xyratex rises on challenge from investment firm

NEW YORK (AP) -- Shares of Xyratex Ltd. rose Monday after the Xyratex's largest shareholder said the data storage and technology company needs to change its business strategy and change its board of directors.

THE SPARK: Baker Street Capital Management LLC said Monday that it believes Xyratex is investing the profits from its network storage and storage infrastructure businesses into high-performance computing and cloud computing ventures that are unproven and losing money. It said Xyratex should add three new independent directors to its board and have the new board review the company's strategic options.

Baker Street owns 22.9 percent of Xyraxtex's shares. It added that two of the company's top executives are on the board, which compromises the board's independence and makes it harder to hold management accountable. It said Chief Financial Officer Richard Pearce should not be on the board.

THE BIG PICTURE: Xyratex's results have been hurt by broader economic conditions and by performance problems with its products. On Thursday Xyratex posted a fourth-quarter loss and said revenue fell 32 percent compared to the previous year. The company expects to another loss in the first quarter and forecast less revenue than Wall Street had anticipated.

In October the company said some of its products failed to meet technical and performance requirements during the third quarter, leading to sales delays.

SHARE ACTION: Xyratex shares rose 70 cents, or 8.4 percent, to close at $9.07 Monday. Before those gains, the stock had lost 18.4 percent of its value since Dec. 21.