This is probably the last intense week of earnings season for me. I still have a bit of cash in my portfolio, and like to try to wait until the end of the season before deploying cash, or not, or even raising more by selling some stock.
First up Regeneron (REGN) Tuesday morning, the conference begins at 5:30 AM my (Pacific) time, so I might wait to listen to the recording. In any case my notes will eventually appear at Regeneron Q2 Analyst Conference Notes. I started a very small position in REGN in June, so this will be my first conference as a stockholder. I'll be looking to see how revenue is ramping, but most of the value is still in the pipeline, so any news on that will be of great interest.
I'll be listening to supercomputer manufacturer SGI on Wednesday, but I don't expect much from them. But you never know. If the stock is cheap enough and they show signs of improving, I would consider buying back in. My notes will be at SGI Q2 analyst conference.
Thursday is the busy day. Starting with Mylan (MYL) at 7:00 AM PT, notes at Mylan Q2 2014 analyst conference. Mylan is a generic drug maker. I'll be looking for a report on biosimilars, but mainly the question is how did overall revenue come in, and what were costs and resulting earnings. I think 5 years down the road I will be happy to have started a position this year, but I don't see where a short term pop could come from.
Dot Hill (HILL) is at 8:00 AM PT. This little-known company makes data storage equipment that is rebranded by an increasing number of storage companies. It is my largest small cap holding, so I am keenly interested. At this point it is mainly a question of how much their end customers ramp sales, which is hard to predict. The stock price did extremely well in 2013, and I think will be up again significantly by early 2015, but predicting quarter to quarter sales and profits and stock price is difficult. Dot HIll Q2 2014 analyst conference.
Nvidia is the only company in this lot that has a recognizable brand name. I don't own any NVDA but I have in the past. Nvidia has great graphics engineers and a plan to capitalize on graphics computing both on mobile devices and on the cloud computers that service them. I own stock in rivals AMD and Marvell (MRVL). I would certainly considering owning NVDA at some price point, and will be watching for its cloud computing progress in this normally seasonally slow fiscal quarter, which includes July. Nvidia Q2 2014 analyst conference.
Of course many more companies report this weak, and I enjoy getting other financial writer's reports, and hearing the opinions of others in the investment community. While I will read articles from any source, I generally find that Seeking Alpha, which I write for, is consistently more helpful to me than other sites. I also read the SEC documents of a company before investing; only fools don't.
Showing posts with label SGI. Show all posts
Showing posts with label SGI. Show all posts
Monday, August 4, 2014
Friday, May 2, 2014
Celgene, Seagate, TTM, SGI and Vertex Pharmaceuticals
Another busy week. Here's my work that you can find for free online:
Celgene in 2015: $200 per share [at Seeking Alpha on April 29, 2014] which was partly based on my summary of the Celgene Q1 analyst call.
Other notes on quarter reports/analyst calls this week:
Seagate is muddling along, with a good (low) P/E ratio, good dividends, and ability to sustain or even grow the dividends as long as the world needs data storage.
TTM Technologies, the PCB (printed circuit board) manufacturer had a seasonally down Q1 but believes the second half of the year will be strong. The analysis here is that as TTMI generates cash and pays down the debt it used to acquire its Chinese factories, earnings will grow.
SGI continues to struggle. The stock price is too high to warrant my buying in (I closed my position
in January); a turn around is already priced in. But I just don't share SGI management's belief that they will do better in the second half.
Vertex Pharmaceuticals is in disaster mode, but Wall Street is still treating it like it is already a Gilead or Celgene. Vertex is doing great work helping Cystic Fibrosis patients, but with its Hepatitis C franchise dead, I think it is way overpriced. Way, way over priced. Ridiculously overpriced. I say that as someone who frequently argues that drug pipelines are undervalued by investors.
Next week: Microchip, Hansen Medical, Regeneron, Dendreon and Dot Hill report.
Celgene in 2015: $200 per share [at Seeking Alpha on April 29, 2014] which was partly based on my summary of the Celgene Q1 analyst call.
Other notes on quarter reports/analyst calls this week:
Seagate is muddling along, with a good (low) P/E ratio, good dividends, and ability to sustain or even grow the dividends as long as the world needs data storage.
TTM Technologies, the PCB (printed circuit board) manufacturer had a seasonally down Q1 but believes the second half of the year will be strong. The analysis here is that as TTMI generates cash and pays down the debt it used to acquire its Chinese factories, earnings will grow.
SGI continues to struggle. The stock price is too high to warrant my buying in (I closed my position
in January); a turn around is already priced in. But I just don't share SGI management's belief that they will do better in the second half.
Vertex Pharmaceuticals is in disaster mode, but Wall Street is still treating it like it is already a Gilead or Celgene. Vertex is doing great work helping Cystic Fibrosis patients, but with its Hepatitis C franchise dead, I think it is way overpriced. Way, way over priced. Ridiculously overpriced. I say that as someone who frequently argues that drug pipelines are undervalued by investors.
Next week: Microchip, Hansen Medical, Regeneron, Dendreon and Dot Hill report.
Friday, January 31, 2014
Seagate, SGI, Microchip analyst calls and results
I have posted my notes on this week's technology sector analyst conference calls and results:
Seagate
SGI
Microchip
I own Seagate (STX), which plunged after its report, but I believe that simply makes it more undervalued. Storage demand is still growing and Seagate is a cash cow with a healthy dividend.
I owned SGI (SGI) for years, but sold my remaining holdings today at $13.07 per share. I had bought these particular shares in May 2012 in two chunks for $6.69 and $5.27 per share. I will likely continue to cover SGI for a while and might buy back in if it looks like a turnaround with legs is in progress.
I also own Microchip (MCHP), which has been a stalwart of my stock portfolio. Lately Microchip has been growing substantially faster than the computer industry as a whole. It also pays a nice dividend.
Seagate
SGI
Microchip
I own Seagate (STX), which plunged after its report, but I believe that simply makes it more undervalued. Storage demand is still growing and Seagate is a cash cow with a healthy dividend.
I owned SGI (SGI) for years, but sold my remaining holdings today at $13.07 per share. I had bought these particular shares in May 2012 in two chunks for $6.69 and $5.27 per share. I will likely continue to cover SGI for a while and might buy back in if it looks like a turnaround with legs is in progress.
I also own Microchip (MCHP), which has been a stalwart of my stock portfolio. Lately Microchip has been growing substantially faster than the computer industry as a whole. It also pays a nice dividend.
Wednesday, August 7, 2013
Microchip (MCHP), Akamai (AKAM), SGI, and Hansen Medical (HNSN)
Earnings season is in full swing to me, as small and mid-cap firms that I follow report.
Today the editors at Seeking Alpha accepted and posted these articles I wrote:
Akamai Remains Volatile, So Buy on Dips
Microchip for Solid Growth and Dividends
I also posted my notes on the analyst conferences:
SGI June quarter 2013 analyst call
Hansen Medical (HNSN) June quarter 2013 analyst call
Neither SGI nor HNSN were very inspiring, which I'll explain when I have time to write articles on them, though it is pretty obvious from the June quarter results.
As I write this I own Microchip (MCHP), Silicon Graphics International (SGI) and Hansen Medical (HNSN) stock, but not Akamai (AKAM).
Today the editors at Seeking Alpha accepted and posted these articles I wrote:
Akamai Remains Volatile, So Buy on Dips
Microchip for Solid Growth and Dividends
I also posted my notes on the analyst conferences:
SGI June quarter 2013 analyst call
Hansen Medical (HNSN) June quarter 2013 analyst call
Neither SGI nor HNSN were very inspiring, which I'll explain when I have time to write articles on them, though it is pretty obvious from the June quarter results.
As I write this I own Microchip (MCHP), Silicon Graphics International (SGI) and Hansen Medical (HNSN) stock, but not Akamai (AKAM).
Tuesday, January 15, 2013
SGI Q2 Deals Slip from Fiscal Cliff
SGI (Silicon Graphics International) today announced preliminary December 2012 (fiscal Q2 2013) results that exceeded earnings guidance while falling short of revenue guidance.
Based in Fremont, California, SGI manufactures supercomputers that are used in science research, Internet-based businesses, security, and other computation-intensive businesses. Revenues for the quarter were near $171 million, well below guidance of $180 to $195 million. CEO Jorge Titinger attributed the shortfall to three large deals with government agencies that normally would have closed in the quarter. In total the deals represented $15 million in revenue, and two of the three have closed since the quarter ended. The delays were due to agency concerns about their budgets due to the fiscal cliff standoff.
Despite the revenue shortfall, profits came in above prior guidance. This was due to better management, including closer attention to profit margins on individual supercomputer sales. On a GAAP basis net income is expected to be between break even and $1 million, or zero to $0.03 per share. On a non-GAAP basis net income is between $3 million and $4 million, for $0.07 to $0.10 earnings per share (EPS).
SGI ended the quarter with $128 million in cash, up $17 million in the quarter. Titinger and the new management team have started requiring deposits and milestone payments on the more expensive supercomputer systems, resulting in better cash flow.
It a presentation to investors, Titinger emphasized SGI's expertise in Big Data and Scale-Up Computing, as well as innovative storage solutions for massive amounts of data that need to be available for analysis. He talked about how SGI computers can do complex security checks for credit cards in real time (as they happen), something that used to take days to do.
As a sweetener SGI will used $15 million of its cash to buy back shares.
SGI stock ended the day at $10.87, up $0.34 for the day or 3.2%. That gave SGI a market capitalization of $360 million.
Disclaimer: I own SGI stock and will not trade the stock for 3 days after the publication of this report.
Based in Fremont, California, SGI manufactures supercomputers that are used in science research, Internet-based businesses, security, and other computation-intensive businesses. Revenues for the quarter were near $171 million, well below guidance of $180 to $195 million. CEO Jorge Titinger attributed the shortfall to three large deals with government agencies that normally would have closed in the quarter. In total the deals represented $15 million in revenue, and two of the three have closed since the quarter ended. The delays were due to agency concerns about their budgets due to the fiscal cliff standoff.
Despite the revenue shortfall, profits came in above prior guidance. This was due to better management, including closer attention to profit margins on individual supercomputer sales. On a GAAP basis net income is expected to be between break even and $1 million, or zero to $0.03 per share. On a non-GAAP basis net income is between $3 million and $4 million, for $0.07 to $0.10 earnings per share (EPS).
SGI ended the quarter with $128 million in cash, up $17 million in the quarter. Titinger and the new management team have started requiring deposits and milestone payments on the more expensive supercomputer systems, resulting in better cash flow.
It a presentation to investors, Titinger emphasized SGI's expertise in Big Data and Scale-Up Computing, as well as innovative storage solutions for massive amounts of data that need to be available for analysis. He talked about how SGI computers can do complex security checks for credit cards in real time (as they happen), something that used to take days to do.
As a sweetener SGI will used $15 million of its cash to buy back shares.
SGI stock ended the day at $10.87, up $0.34 for the day or 3.2%. That gave SGI a market capitalization of $360 million.
Disclaimer: I own SGI stock and will not trade the stock for 3 days after the publication of this report.
Thursday, September 20, 2012
Can SGI Improve Supercomputer Margins?
Silicon Graphics International (SGI) makes supercomputers. Its clients include government agencies, financial firms, the pharmaceutical industry, Web farms including cloud services, and an increasing number of business verticals. Just before I last wrote about SGI in February it had run into profitability issues [See SGI Challenged by Analysts]. SGI's stock price was at had declined rapidly from near $15.00 per share to under $10.00. Today SGI closed at $9.37. The 52 week low hit $5.02 on May 21st this year. Is SGI ramping its sales and margins, or is the price increase just a dead cat bounce?
SGI is on a fiscal year, but I'll refer to calendar quarters. For the December 2011 quarter revenues were $195.2 million, non-GAAP net income was just $1.3 million.
The March quarter, which is typically sequentially and seasonally lower in the supercomputer business, saw revenues of $199.4 million, with non-GAAP net income of $3.7 million. June quarter revenue was a dismal $179.5 million, with non-GAAP net income of negative $3 million.
So anyone long in the stock has a case to prove.
Market capitalization ended today at $303 million. Even at $180 million per quarter revenue is running $720 million per year. While higher revenues might be good, the real problem this last year has been margins.
Management has noted that their invoicing process for some computer systems had been SNAFU. As a result, they lost money on those individual systems. Sales people were making deals with insufficient supervision, resulting in great steals for the customers, but no profits for the firm. That practice should have ended by now, but because of the size of SGI deals and the lengthy delivery and revenue recognition processes for supercomputers, there will still be some of that low-margin revenue in the September quarter and maybe as late as the March 2013 quarter. In the June quarter SGI rejected several deals in that quarter because of insufficient margins.
Of course rejecting low-margin deals leads to lower revenues, unless the customers are not as price-sensitive as they pretend to be.
Generally, the business background situation is a cause for optimism. The increases in spending on cloud computing, scientific computing, security computing, and high-performance computing (HPC) have been steady and are likely to accelerate in the past few years.
The new SGI UV 2 supercomputer has received good reviews. SGI does not usually break out revenue by type of computer sold, though that would be helpful to the investment community.
The last guidance issued for the September quarter was for revenue between $180 and $195 million and non-GAAP net income in the vicinity of negative $6 million. The quarter is not over, and the macroeconomy has not been helpful.
I should point out that the old Rackable Systems, which bought the bankrupt old SGI to become the current SGI, also had the same margin issues. Management changes from time to time and new management always says they understand the issue and will deliver better margins in the future. Buying SGI stock right now is a bet that the current CEO, Jorge L. Titinger, who joined SGI on February 27, 2012, can break what seems to be an entrenched corporate culture of great engineering combined with disdain for a need to consistently generate solid profits.
The problem may, in part, be competition, in addition to the sad corporate culture. SGI competes with Dell, Cray, IBM, HP, Appro, Oracle and Fujitsu, among others.
Disclaimer: I am long SGI. I will not make any changes in my position for the next week.
Keep diversified!
SGI is on a fiscal year, but I'll refer to calendar quarters. For the December 2011 quarter revenues were $195.2 million, non-GAAP net income was just $1.3 million.
The March quarter, which is typically sequentially and seasonally lower in the supercomputer business, saw revenues of $199.4 million, with non-GAAP net income of $3.7 million. June quarter revenue was a dismal $179.5 million, with non-GAAP net income of negative $3 million.
So anyone long in the stock has a case to prove.
Market capitalization ended today at $303 million. Even at $180 million per quarter revenue is running $720 million per year. While higher revenues might be good, the real problem this last year has been margins.
Management has noted that their invoicing process for some computer systems had been SNAFU. As a result, they lost money on those individual systems. Sales people were making deals with insufficient supervision, resulting in great steals for the customers, but no profits for the firm. That practice should have ended by now, but because of the size of SGI deals and the lengthy delivery and revenue recognition processes for supercomputers, there will still be some of that low-margin revenue in the September quarter and maybe as late as the March 2013 quarter. In the June quarter SGI rejected several deals in that quarter because of insufficient margins.
Of course rejecting low-margin deals leads to lower revenues, unless the customers are not as price-sensitive as they pretend to be.
Generally, the business background situation is a cause for optimism. The increases in spending on cloud computing, scientific computing, security computing, and high-performance computing (HPC) have been steady and are likely to accelerate in the past few years.
The new SGI UV 2 supercomputer has received good reviews. SGI does not usually break out revenue by type of computer sold, though that would be helpful to the investment community.
The last guidance issued for the September quarter was for revenue between $180 and $195 million and non-GAAP net income in the vicinity of negative $6 million. The quarter is not over, and the macroeconomy has not been helpful.
I should point out that the old Rackable Systems, which bought the bankrupt old SGI to become the current SGI, also had the same margin issues. Management changes from time to time and new management always says they understand the issue and will deliver better margins in the future. Buying SGI stock right now is a bet that the current CEO, Jorge L. Titinger, who joined SGI on February 27, 2012, can break what seems to be an entrenched corporate culture of great engineering combined with disdain for a need to consistently generate solid profits.
The problem may, in part, be competition, in addition to the sad corporate culture. SGI competes with Dell, Cray, IBM, HP, Appro, Oracle and Fujitsu, among others.
Disclaimer: I am long SGI. I will not make any changes in my position for the next week.
Keep diversified!
Wednesday, February 8, 2012
SGI Challenged by Analysts
Today Silicon Graphics International (SGI) stock plunged over 20% following yesterday's release of December 2011 (fiscal Q2 2012) numbers. A group of analysts on the investor conference call challenged statements by SGI management and tried to pin down details on why profits were lower on higher revenues.
SGI manufactures what are still sometimes called supercomputers: high capability computer systems for datacenters, scientific research, and high performance business uses. Amazon.com is the largest single client by revenue. The U.S. government, in aggregate, is an over 10% customer.
Revenues for fiscal Q2 were $195.2 million, up 9% sequentially from $178.9 million and up 10% from $177.5 million in the year-earlier quarter. Bookings were even stronger in the quarter, partly due to the newest marvel, the ICE X HPC platform, which booked $90 million.
Costs, however, were up enough to reduce GAAP EPS to negative $0.07 per share. Non-GAAP EPS was positive $0.04, but that represents non-GAAP net income of just $2.3 million on $195 million of revenue, or about 1%.
What analysts wanted to understand was exactly why SGI has gone back to the old SGI way of making great products and generating revenues while losing investors' money. Also, if it can be fixed, exactly how that fix would take place. If you have followed SGI you know the current version was created when Rackable bought the old, bankrupt SGI. Rackable itself had been consistently losing money, but had a lot of cash and bought SGI for essentially nothing.
Even before the analyst question segment began the new temporary CEO, Ron Verdoorn, gave a number of reasons for the earnings shortfall. The three main ones were fixed costs in Europe that are too high, forex exchange rates issues, and the transition to new product lines. Success in selling the rackable line of server systems, which have lower margins than other lines, also led to lower overall margins.
The Europe problem would appear to be fixable by either cutting costs in Europe or selling more product while keeping costs level. SGI has lost money in Europe for over 2 years, hoping the sell more option would work out. Now restructuring is planned, but as usual that will create short term costs before generating long term savings.
I was surprised that management did not try to divert analysts in another direction. Research and development expense was up almost $3 million from the December quarter of 2010. I consider that a form of reinvestment. If ICE X alone generated $90 million in orders, that would certainly rationalize the $5 million increase in sales and marketing expense.
An even bigger bite out of revenue came from cost of revenue, which would be cost of goods sold for the hardware, but includes cost of providing services, too. That was up almost $18 million from the year-earlier quarter. Maybe SGI is pricing its products and services too low, but there could be a time lag effect as new systems are developed, manufactured, and sold before revenue is recognized.
Inventories were listed as worth $117.6 million, which is an astonishing increase of $36.6 million from $81.0 million year-earlier. I doubt those inventories consist of unsold or unsellable supercomputers. They should represent orders in hand and a reasonable estimate of pipeline demand.
If that is true, maybe management's statement that things will look a lot better in the second half of calendar 2012 is believable. Of course such estimates always assume no Japanese earthquakes, Thai floods, or Euro collapse issues, which were bad assumptions in 2011. Despite all of the problems of 2011, SGI made a big impression on the computer world with its new products, generating record revenue.
Analysts are right to challenge management's statements and assumptions. Most investors would like to see a lot more of that on investor conference calls. It is tough on management, but I feel I knew a lot more about SGI's real situation by the time the call was over.
I remain optimistic about SGI, but consider it one of my risky investments, with a limited place in my portfolio until it can demonstrate consistent higher profit margins.
Disclaimer: I am long SGI. I will not initiate any changes in my position for the next 2 weeks.
Keep diversified!
SGI manufactures what are still sometimes called supercomputers: high capability computer systems for datacenters, scientific research, and high performance business uses. Amazon.com is the largest single client by revenue. The U.S. government, in aggregate, is an over 10% customer.
Revenues for fiscal Q2 were $195.2 million, up 9% sequentially from $178.9 million and up 10% from $177.5 million in the year-earlier quarter. Bookings were even stronger in the quarter, partly due to the newest marvel, the ICE X HPC platform, which booked $90 million.
Costs, however, were up enough to reduce GAAP EPS to negative $0.07 per share. Non-GAAP EPS was positive $0.04, but that represents non-GAAP net income of just $2.3 million on $195 million of revenue, or about 1%.
What analysts wanted to understand was exactly why SGI has gone back to the old SGI way of making great products and generating revenues while losing investors' money. Also, if it can be fixed, exactly how that fix would take place. If you have followed SGI you know the current version was created when Rackable bought the old, bankrupt SGI. Rackable itself had been consistently losing money, but had a lot of cash and bought SGI for essentially nothing.
Even before the analyst question segment began the new temporary CEO, Ron Verdoorn, gave a number of reasons for the earnings shortfall. The three main ones were fixed costs in Europe that are too high, forex exchange rates issues, and the transition to new product lines. Success in selling the rackable line of server systems, which have lower margins than other lines, also led to lower overall margins.
The Europe problem would appear to be fixable by either cutting costs in Europe or selling more product while keeping costs level. SGI has lost money in Europe for over 2 years, hoping the sell more option would work out. Now restructuring is planned, but as usual that will create short term costs before generating long term savings.
I was surprised that management did not try to divert analysts in another direction. Research and development expense was up almost $3 million from the December quarter of 2010. I consider that a form of reinvestment. If ICE X alone generated $90 million in orders, that would certainly rationalize the $5 million increase in sales and marketing expense.
An even bigger bite out of revenue came from cost of revenue, which would be cost of goods sold for the hardware, but includes cost of providing services, too. That was up almost $18 million from the year-earlier quarter. Maybe SGI is pricing its products and services too low, but there could be a time lag effect as new systems are developed, manufactured, and sold before revenue is recognized.
Inventories were listed as worth $117.6 million, which is an astonishing increase of $36.6 million from $81.0 million year-earlier. I doubt those inventories consist of unsold or unsellable supercomputers. They should represent orders in hand and a reasonable estimate of pipeline demand.
If that is true, maybe management's statement that things will look a lot better in the second half of calendar 2012 is believable. Of course such estimates always assume no Japanese earthquakes, Thai floods, or Euro collapse issues, which were bad assumptions in 2011. Despite all of the problems of 2011, SGI made a big impression on the computer world with its new products, generating record revenue.
Analysts are right to challenge management's statements and assumptions. Most investors would like to see a lot more of that on investor conference calls. It is tough on management, but I feel I knew a lot more about SGI's real situation by the time the call was over.
I remain optimistic about SGI, but consider it one of my risky investments, with a limited place in my portfolio until it can demonstrate consistent higher profit margins.
Disclaimer: I am long SGI. I will not initiate any changes in my position for the next 2 weeks.
Keep diversified!
Tuesday, November 29, 2011
SGI Supercomputer Revenue Growth Continues
Looking for the technology company that reported calendar Q3 2011 revenue that was 58% higher than its Q3 of 2010? That would be Silicon Graphics International (SGI), manufacturer of high-performance technical computers (supercomputers) and high-efficiency server systems for datacenters and cloud computing.
GAAP revenues for fiscal Q1 2012 ending September 30, 2011 were $178.9 million, down 8% sequentially from $195.5 million, but up 58% from $112.9 million in the year-earlier quarter. GAAP net income was negative $2.7 million, improved sequentially from negative $12.1 million and improved from negative $11.2 million year-earlier. EPS (earnings per share) were negative $0.08, improved sequentially from negative $0.39, and also improved from negative $0.37 year-earlier.
While in the red on a GAAP basis, on a non-GAAP basis (mostly eliminating non-cash expenses like stock-based compensation) SGI managed a profit of $2.2 million, or $0.07 per share. SGI has gone through a period of investing to introduce new products, and also expanding its sales force. Profit margins could improve as further ramps in revenue should not require similar ramps in operating expenses.
While not giving guidance by quarter, for fiscal year 2012 (running to June 2012) revenue is expected between $740 and $780 million, up to 24% over fiscal 2011.GAAP EPS is estimated between $0.15 and $0.30. Non-GAAP EPS expected between $0.60 and $0.80.
How are they achieving such stellar growth while other computer makers are lagging? SGI specializes in expensive computers used for scientific research, as well as large systems for cloud computing and Web farms. These are all areas that continue to grow quickly. While there is competition from the likes of IBM, HP, Dell, and Cray, the newest systems introduced by SGI, notably Altix UV, are better at addressing the needs of their markets.
Nor is SGI resting on their laurels. They are introducing computers that run large scale systems running Windows SQL Server. They have improved their compatibility with Hadoop and Red Hat Enterprise Linux. They continue to be a major supplier for Amazon's cloud system. They also have started acquiring small companies that specialize in supercomputer application software. SGI expects that the ability to sell software as well as hardware will be a major advantage for verticals they service, with higher profit margins.
Finally, they ended the latest quarter with $115 million in cash with no debt. They did use $30 million of cash to build inventory in the quarter, but the systems built had been pre-ordered and should be shipping this quarter.
Because of the size of the systems involved, some quarter-to-quarter lumpiness is to be expected.
If you read what scientists are saying about Altix UV, you will realize why management has become very confident in SGI's future. On the analyst call they stated the next big SGI milestone will be $1 billion in annual revenue, which should bring between $1.75 and $2.00 non-GAAP EPS per share.
The recent growth has been in the face of a lot of uncertainty and a poor macroeconomy. Even so, if the doomsayers are right about global slowdown or meltdown scenarios in 2012, that could impact sales. I am more concerned about competition, but it does seem that for now SGI has found a niche where it can outcompete far larger companies.
For more details on calendar Q3 results, see my SGI Q1 fiscal 2012 analyst call summary.
Disclaimer: I am long SGI. I won't change my position for at least one week from today.
The usual risks apply, so keep diversified!
See also: www.sgi.com
GAAP revenues for fiscal Q1 2012 ending September 30, 2011 were $178.9 million, down 8% sequentially from $195.5 million, but up 58% from $112.9 million in the year-earlier quarter. GAAP net income was negative $2.7 million, improved sequentially from negative $12.1 million and improved from negative $11.2 million year-earlier. EPS (earnings per share) were negative $0.08, improved sequentially from negative $0.39, and also improved from negative $0.37 year-earlier.
While in the red on a GAAP basis, on a non-GAAP basis (mostly eliminating non-cash expenses like stock-based compensation) SGI managed a profit of $2.2 million, or $0.07 per share. SGI has gone through a period of investing to introduce new products, and also expanding its sales force. Profit margins could improve as further ramps in revenue should not require similar ramps in operating expenses.
While not giving guidance by quarter, for fiscal year 2012 (running to June 2012) revenue is expected between $740 and $780 million, up to 24% over fiscal 2011.GAAP EPS is estimated between $0.15 and $0.30. Non-GAAP EPS expected between $0.60 and $0.80.
How are they achieving such stellar growth while other computer makers are lagging? SGI specializes in expensive computers used for scientific research, as well as large systems for cloud computing and Web farms. These are all areas that continue to grow quickly. While there is competition from the likes of IBM, HP, Dell, and Cray, the newest systems introduced by SGI, notably Altix UV, are better at addressing the needs of their markets.
Nor is SGI resting on their laurels. They are introducing computers that run large scale systems running Windows SQL Server. They have improved their compatibility with Hadoop and Red Hat Enterprise Linux. They continue to be a major supplier for Amazon's cloud system. They also have started acquiring small companies that specialize in supercomputer application software. SGI expects that the ability to sell software as well as hardware will be a major advantage for verticals they service, with higher profit margins.
Finally, they ended the latest quarter with $115 million in cash with no debt. They did use $30 million of cash to build inventory in the quarter, but the systems built had been pre-ordered and should be shipping this quarter.
Because of the size of the systems involved, some quarter-to-quarter lumpiness is to be expected.
If you read what scientists are saying about Altix UV, you will realize why management has become very confident in SGI's future. On the analyst call they stated the next big SGI milestone will be $1 billion in annual revenue, which should bring between $1.75 and $2.00 non-GAAP EPS per share.
The recent growth has been in the face of a lot of uncertainty and a poor macroeconomy. Even so, if the doomsayers are right about global slowdown or meltdown scenarios in 2012, that could impact sales. I am more concerned about competition, but it does seem that for now SGI has found a niche where it can outcompete far larger companies.
For more details on calendar Q3 results, see my SGI Q1 fiscal 2012 analyst call summary.
Disclaimer: I am long SGI. I won't change my position for at least one week from today.
The usual risks apply, so keep diversified!
See also: www.sgi.com
Monday, August 22, 2011
SGI Sees Revenue Growth in 2012
Silicon Graphics International (SGI) sells data processing systems with a focus on technical computing. Their high-end systems are used to solve some of the toughest computational problems encountered by government and industry. They also provide datacenter equipment for cloud computing to companies like Amazon.
The new SGI is basically a combination of the old Rackable Systems, which specialized in datacenter server systems, and the old, bankrupt SGI, which specialized in high-performance science computing. I had my doubts when the two companies merged, but the new company turned out to be better at executing than either of the old companies.
The transformation of SGI is about technology, sales, and profit margins. In last Thursday's report on fiscal Q4 2011 (ending June 24) we saw record revenues for the typically slow Q4. Revenues were $195.5 million, up 36% sequentially from $143.7 million and up 92% from $101.6 million year-earlier. While GAAP net income was negative $12.1 million, non-GAAP net income was $3.9 million. Of course I would prefer to see GAAP net income in the black too. In this case the difference is largely due to non-cash operating expenses, restructuring, and software revenue recognition rules (because the computer systems have software bundled with the hardware). As a check on the merits of GAAP vs. non-GAAP, the cash balance was up $9.4 million in the quarter.
SGI is debt-free and had a cash and equivalents balance of $143 million at quarter's end. They can fund a strong R&D effort and could make acquisitions if needed.
The new Altix UV supercomputer line has no real direct competitors. It has a memory and processor model that make it very attractive to high-end technical users. Because of that profit margins are good. The rackable systems for server farms and cloud computing continue to offer innovative designs, but margins have been improved there as well.
The company is now truly international, which is important when your key products are supercomputers. Service revenue is also a key factor in the new, profitable business model.
In response to questions from analysts management went into some detail, and speculation, about technologies they are developing. They are working with Microsoft to expand the capabilities of SQL Server. They believe that for certain types of computing they will be able to deliver performance equivalent to Oracle's Exadata systems at about one-third of Oracle's current price. Considering how successful Exadata has been, both in terms of compute ability and revenue generation, that could be highly significant in 2012.
Analysts also speculated that with budgets thin, SGI might have difficulty selling its computers to government agencies. However, SGI has little or no exposure to state and local governments in the U.S. Federal agencies still seem eager to decrease their other costs by upgrading their compute capabilities. For industry, the total cost of the design process is decreased by buying more computational power.
While not giving guidance by quarter, for fiscal year 2012 (running to June 2012) revenue is expected between $740 and $780 million, up to 24% over fiscal 2011.GAAP EPS is estimated between $0.15 and $0.30. Non-GAAP EPS expected between $0.60 and $0.80.
For more details on quarter results, see my SGI Q4 fiscal 2011 analyst call summary.
Disclaimer: I am long SGI.
The usual risks apply, so keep diversified.
See also: http://www.sgi.com/
The new SGI is basically a combination of the old Rackable Systems, which specialized in datacenter server systems, and the old, bankrupt SGI, which specialized in high-performance science computing. I had my doubts when the two companies merged, but the new company turned out to be better at executing than either of the old companies.
The transformation of SGI is about technology, sales, and profit margins. In last Thursday's report on fiscal Q4 2011 (ending June 24) we saw record revenues for the typically slow Q4. Revenues were $195.5 million, up 36% sequentially from $143.7 million and up 92% from $101.6 million year-earlier. While GAAP net income was negative $12.1 million, non-GAAP net income was $3.9 million. Of course I would prefer to see GAAP net income in the black too. In this case the difference is largely due to non-cash operating expenses, restructuring, and software revenue recognition rules (because the computer systems have software bundled with the hardware). As a check on the merits of GAAP vs. non-GAAP, the cash balance was up $9.4 million in the quarter.
SGI is debt-free and had a cash and equivalents balance of $143 million at quarter's end. They can fund a strong R&D effort and could make acquisitions if needed.
The new Altix UV supercomputer line has no real direct competitors. It has a memory and processor model that make it very attractive to high-end technical users. Because of that profit margins are good. The rackable systems for server farms and cloud computing continue to offer innovative designs, but margins have been improved there as well.
The company is now truly international, which is important when your key products are supercomputers. Service revenue is also a key factor in the new, profitable business model.
In response to questions from analysts management went into some detail, and speculation, about technologies they are developing. They are working with Microsoft to expand the capabilities of SQL Server. They believe that for certain types of computing they will be able to deliver performance equivalent to Oracle's Exadata systems at about one-third of Oracle's current price. Considering how successful Exadata has been, both in terms of compute ability and revenue generation, that could be highly significant in 2012.
Analysts also speculated that with budgets thin, SGI might have difficulty selling its computers to government agencies. However, SGI has little or no exposure to state and local governments in the U.S. Federal agencies still seem eager to decrease their other costs by upgrading their compute capabilities. For industry, the total cost of the design process is decreased by buying more computational power.
While not giving guidance by quarter, for fiscal year 2012 (running to June 2012) revenue is expected between $740 and $780 million, up to 24% over fiscal 2011.GAAP EPS is estimated between $0.15 and $0.30. Non-GAAP EPS expected between $0.60 and $0.80.
For more details on quarter results, see my SGI Q4 fiscal 2011 analyst call summary.
Disclaimer: I am long SGI.
The usual risks apply, so keep diversified.
See also: http://www.sgi.com/
Saturday, May 7, 2011
SGI Beats Expectations with fast start to 2011
SGI (Silicon Graphics International) got of to its fastest start ever in Q1 of 2011. Revenues were $143.7 million , down 19% sequentially from $177.5 million, but up 33% from $107.8 million in the year-earlier quarter. Because SGI's computer systems are large ticket items, and many of its customers are government agencies, the slide from Q4 to Q1 is not unusual. The real trend to watch was the 33% uptick from Q1 2010.
The Altix UV supercomputer line introduced in 2010 continues to sell well. Recent initiatives are helping, notably UV systems running the Windows operating system and SQL Server. The storage side of the business did well. The two largest customers of SGI are Amazon.com and the U.S. government.
SGI is the result of the acquisition of the old SGI, Silicon Graphics, by Rackable Systems, which specialized in racked server systems designed for power savings. In the analyst conference call on May 3rd, management said exactly what I had been hoping for when the companies merged. The old Silicon Graphics made great computers, but never showed any concern for returns for shareholders, and finally went bankrupt in 2009.
The new SGI retained the tradition of making great computers for technical computing, but has been keeping costs down with an eye on making profits for stockholders. This is great!
For details see my summary, SGI Q1 2011 Analyst Conference. Note this was actualy fiscal Q3 for SGI.
See also Silicon Graphics International
Disclaimer: I own SGI stock.
Keep diversified!
The Altix UV supercomputer line introduced in 2010 continues to sell well. Recent initiatives are helping, notably UV systems running the Windows operating system and SQL Server. The storage side of the business did well. The two largest customers of SGI are Amazon.com and the U.S. government.
SGI is the result of the acquisition of the old SGI, Silicon Graphics, by Rackable Systems, which specialized in racked server systems designed for power savings. In the analyst conference call on May 3rd, management said exactly what I had been hoping for when the companies merged. The old Silicon Graphics made great computers, but never showed any concern for returns for shareholders, and finally went bankrupt in 2009.
The new SGI retained the tradition of making great computers for technical computing, but has been keeping costs down with an eye on making profits for stockholders. This is great!
For details see my summary, SGI Q1 2011 Analyst Conference. Note this was actualy fiscal Q3 for SGI.
See also Silicon Graphics International
Disclaimer: I own SGI stock.
Keep diversified!
Wednesday, March 23, 2011
Itanium Near Death
Itanium processors, decreed Intel back in 1998, were the next big thing. The question was how to deal with the 32 bit to 64 bit data path transition, which had already been made by some high-end competitors like Sun and IBM. Itanium would be the high end, while consumers and small businesses could make due for another decade with 32 bit Intel based machines.
AMD (then Advanced Micro Devices) saw an opportunity and introduced x86 chips that could run either 32 bit or 64 bit software, or both. The idea was popular partly because it was far easier for software developers to upgrade x86 code from 32 to 64 bits than to create the new, Itanium code, which had a different instruction set.
Intel had to follow AMD's lead and introduce 64 bit, non-Itanium upgrades to its chips. In addition, the original Itaniums, introduced in 2001, were not very competitive with the IBM and Sun chips. Most businesses that wanted a 64 bit transition opted to go with the lower cost AMD or Intel chips.
Intel nevertheless continued to develop Itanium chips, with HP as their main partner. The market for them was miniscule. Software developers put little effort into Itanium. Red Hat dropped Itanium software development in 2009. Microsoft announced it would phase out Itanium in 2010.
Today Oracle announced it would no longer support Itanium. Oracle dominates enterprise business and database software stacks. At the high end, it now owns the former Sun franchise, and it also runs on the new SGI high-end computers, as well as the more everyday x86 chips from AMD and Intel.
That leaves Intel working with its original partner HP. They are both big companies, but they are drifting away from reaching critical mass with Itanium. Intel is likely to drop Itanium, which means HP will have to stick to commodity CPU chips or look for another partner, perhaps IBM.
The only significant winner I see from this inevitable death of Itanium is SGI. They once made machines based on Itanium, but their new supercomputers, the Altix UV series are popular because, while they run on standard CPUs, they are very effectively glued together by SGI technology. While SGI is a small company compared to HP and IBM, if they can catch even a modest percentage of the customers that need to replace aging Itanium-based computers, they will get a very significant boost. [note: I own SGI and AMD stock at the time this is written]
See also:
www.sgi.com
http://www.hp.com/
Intel Itanium processors
http://www.oracle.com/
http://www.amd.com/
AMD (then Advanced Micro Devices) saw an opportunity and introduced x86 chips that could run either 32 bit or 64 bit software, or both. The idea was popular partly because it was far easier for software developers to upgrade x86 code from 32 to 64 bits than to create the new, Itanium code, which had a different instruction set.
Intel had to follow AMD's lead and introduce 64 bit, non-Itanium upgrades to its chips. In addition, the original Itaniums, introduced in 2001, were not very competitive with the IBM and Sun chips. Most businesses that wanted a 64 bit transition opted to go with the lower cost AMD or Intel chips.
Intel nevertheless continued to develop Itanium chips, with HP as their main partner. The market for them was miniscule. Software developers put little effort into Itanium. Red Hat dropped Itanium software development in 2009. Microsoft announced it would phase out Itanium in 2010.
Today Oracle announced it would no longer support Itanium. Oracle dominates enterprise business and database software stacks. At the high end, it now owns the former Sun franchise, and it also runs on the new SGI high-end computers, as well as the more everyday x86 chips from AMD and Intel.
That leaves Intel working with its original partner HP. They are both big companies, but they are drifting away from reaching critical mass with Itanium. Intel is likely to drop Itanium, which means HP will have to stick to commodity CPU chips or look for another partner, perhaps IBM.
The only significant winner I see from this inevitable death of Itanium is SGI. They once made machines based on Itanium, but their new supercomputers, the Altix UV series are popular because, while they run on standard CPUs, they are very effectively glued together by SGI technology. While SGI is a small company compared to HP and IBM, if they can catch even a modest percentage of the customers that need to replace aging Itanium-based computers, they will get a very significant boost. [note: I own SGI and AMD stock at the time this is written]
See also:
www.sgi.com
http://www.hp.com/
Intel Itanium processors
http://www.oracle.com/
http://www.amd.com/
Thursday, February 3, 2011
Paint SGI Black: Stock Surge
Silicon Graphics International (SGI) has had a rough time the last few years. It is basically a combination of the old Rackable Systems, which specialized in datacenter server systems, and the old, bankrupt SGI, which specialized in high-performance science computing. The release of results for the fiscal 2nd quarter of 2011, which ended December 24, 2010, showed that management has done what it takes to forge two losers into a winner. After years of losses SGI reported GAAP earnings of $0.12 per share and non-GAAP earnings of $0.44 per share. Right now the stock is up 24% over yesterday's close.
With governments now being the main purchasers of SGI computers, Q2 was an exceptional quarter, and the quarter ending in March will see a substantial sequential decline in revenue. However, the overall trends in 2011 should be up.
The transformation of SGI is about technology, sales, and profit margins. If you look at my earlier critiques of SGI & Rackable, neither company's gross margins were high enough to allow them to book profits after operating expenses. For a while Rackable had done well, selling superior, low-energy racked server systems, but then bigger companies started undercutting them based on price. The old SGI, on the other hand, was famous for spending too much on R&D and perks, so managed to lose money on cutting-edge tech.
Now we are seeing the difference between good management and bad. The new Altix UV supercomputer line has no real direct competitors. It has a memory and processor model that make it very attractive to high-end technical users. Because of that profit margins are good. The rackable systems for server farms and cloud computing continue to offer innovative designs, but margins have been improved there as well.
The company is now truly international, which is important when your key product is supercomputers. Service revenue is also a key factor in the new, profitable business model.
How high can SGI fly? It is really difficult to tell. In 2010 it was largely a Linux story, but now Altix UV it is certified for Microsoft's high end products, so revenues from that segment should ramp in 2011. SGI's management believes it can address a $3 billion annual market; revenues in the quarter were just $186 million, so there should be plenty of room to grow.
It is notable that SGI came through the transition with $111 million in cash and no debt.
For more details on quarter results, see my SGI Q2 fiscal 2011 analyst call summary.
See also: www.sgi.com
With governments now being the main purchasers of SGI computers, Q2 was an exceptional quarter, and the quarter ending in March will see a substantial sequential decline in revenue. However, the overall trends in 2011 should be up.
The transformation of SGI is about technology, sales, and profit margins. If you look at my earlier critiques of SGI & Rackable, neither company's gross margins were high enough to allow them to book profits after operating expenses. For a while Rackable had done well, selling superior, low-energy racked server systems, but then bigger companies started undercutting them based on price. The old SGI, on the other hand, was famous for spending too much on R&D and perks, so managed to lose money on cutting-edge tech.
Now we are seeing the difference between good management and bad. The new Altix UV supercomputer line has no real direct competitors. It has a memory and processor model that make it very attractive to high-end technical users. Because of that profit margins are good. The rackable systems for server farms and cloud computing continue to offer innovative designs, but margins have been improved there as well.
The company is now truly international, which is important when your key product is supercomputers. Service revenue is also a key factor in the new, profitable business model.
How high can SGI fly? It is really difficult to tell. In 2010 it was largely a Linux story, but now Altix UV it is certified for Microsoft's high end products, so revenues from that segment should ramp in 2011. SGI's management believes it can address a $3 billion annual market; revenues in the quarter were just $186 million, so there should be plenty of room to grow.
It is notable that SGI came through the transition with $111 million in cash and no debt.
For more details on quarter results, see my SGI Q2 fiscal 2011 analyst call summary.
See also: www.sgi.com
Wednesday, November 24, 2010
SGI Ramps Supercomputer Sales
SGI (Silicon Graphics International) reported calendar third quarter (Q3) results on November 3, 2010. Revenues were $112.9 million, up 12% sequentially from $101.6 million, and up 13% from $100.1 million in the year-earlier quarter. [Actually, these are fiscal Q1 2011 results, for the quarter ending September 24, 2010.]
GAAP net income was negative $11.2 million, up sequentially from negative $27.6 million and up from negative $17.6 million year-earlier. EPS (earnings per share) was negative $0.37, improving sequentially from negative $0.91 and from negative $0.60 year-earlier.
That is modest revenue growth coming off a recession plagued 2009, and well short of hitting a profitable level. Things look better on a non-GAAP basis: Non-GAAP revenue was $130.3 million, up 6% y/y from $122.7 million. Net income negative $1.8 million. Non-GAAP EPS was negative $0.06, improved from negative $0.09 year-earlier. EBIDTA characterized as "positive." But probably not very positive, or they would have given us a number.
Is the new SGI, a combination of Rackable with the old bankrupt SGI, another loser company, unable to keep pace with competitors that can invest more in R&D and can reinvest profits? Maybe not. Maybe management is moving forward at a deliberate pace that really will get the company to break-even in 2011 and profits in 2012. Since the stock price makes the case for the loser scenario (market capitalization end of today was $241 million, about half annual revenues), here I'm going to look at the possible upside.
Q3 was the first full quarter of shipment for Altix UV, SGI's supercomputer offering, and 49 of these systems shipped in the quarter. Silicon Graphics International ships many products besides Altix UV, including racked server systems for datacenters and cloud computing. But I suspect most of the ramp from Q2 to Q3 was from Altix UV.
Service revenue was a healthy 30% of total revenues. Service revenue is usually a steadier stream than hardware revenues when you are selling in chunks as big as SGI does.
Most important of all, SGI reported they entered fiscal Q2 with a strong backlog. There were also large shipments late in the quarter, resulting in a larger accounts receivable than usual, at $96 million.
Altix UV sells mainly to government entities, including research laboratories and universities. But it also can be used for tasks like biotechnology and analysis of oil and gas exploration data. It gives a lot of computing power to these institutions at a very reasonable price. How much demand is out there for 2011, however, is difficult to predict. If the current quarter results come in strong, I would see that as an indicator that calendar 2011 will be a good year.
SGI says that margins on Altix UV are good, partly because of the software stacks that go with the hardware. Margins were a big concern both at the old Rackable and old SGI. I believe that prices on all products should be set to give healthy margins. If competition or lack of demand makes that impossible for particular products, then those product lines should be dropped.
So I'll hold onto my SGI stock and see what the results are for the current quarter. I'd actually like to see more spent on R&D, but only after the company is solidly in the black on a GAAP basis.
See also: Silicon Graphics International web site.
My SGI analyst conference call summaries page
GAAP net income was negative $11.2 million, up sequentially from negative $27.6 million and up from negative $17.6 million year-earlier. EPS (earnings per share) was negative $0.37, improving sequentially from negative $0.91 and from negative $0.60 year-earlier.
That is modest revenue growth coming off a recession plagued 2009, and well short of hitting a profitable level. Things look better on a non-GAAP basis: Non-GAAP revenue was $130.3 million, up 6% y/y from $122.7 million. Net income negative $1.8 million. Non-GAAP EPS was negative $0.06, improved from negative $0.09 year-earlier. EBIDTA characterized as "positive." But probably not very positive, or they would have given us a number.
Is the new SGI, a combination of Rackable with the old bankrupt SGI, another loser company, unable to keep pace with competitors that can invest more in R&D and can reinvest profits? Maybe not. Maybe management is moving forward at a deliberate pace that really will get the company to break-even in 2011 and profits in 2012. Since the stock price makes the case for the loser scenario (market capitalization end of today was $241 million, about half annual revenues), here I'm going to look at the possible upside.
Q3 was the first full quarter of shipment for Altix UV, SGI's supercomputer offering, and 49 of these systems shipped in the quarter. Silicon Graphics International ships many products besides Altix UV, including racked server systems for datacenters and cloud computing. But I suspect most of the ramp from Q2 to Q3 was from Altix UV.
Service revenue was a healthy 30% of total revenues. Service revenue is usually a steadier stream than hardware revenues when you are selling in chunks as big as SGI does.
Most important of all, SGI reported they entered fiscal Q2 with a strong backlog. There were also large shipments late in the quarter, resulting in a larger accounts receivable than usual, at $96 million.
Altix UV sells mainly to government entities, including research laboratories and universities. But it also can be used for tasks like biotechnology and analysis of oil and gas exploration data. It gives a lot of computing power to these institutions at a very reasonable price. How much demand is out there for 2011, however, is difficult to predict. If the current quarter results come in strong, I would see that as an indicator that calendar 2011 will be a good year.
SGI says that margins on Altix UV are good, partly because of the software stacks that go with the hardware. Margins were a big concern both at the old Rackable and old SGI. I believe that prices on all products should be set to give healthy margins. If competition or lack of demand makes that impossible for particular products, then those product lines should be dropped.
So I'll hold onto my SGI stock and see what the results are for the current quarter. I'd actually like to see more spent on R&D, but only after the company is solidly in the black on a GAAP basis.
See also: Silicon Graphics International web site.
My SGI analyst conference call summaries page
Friday, November 19, 2010
HILL, DNDN, ONXX, SGI, MCHP, NVDA, AMAT
I have gotten terribly behind, this is hardly a log at all of late ...
Here are links to my summaries of recent Q3 analyst conference calls. Lots of interesting stuff, but I am unlikely to do separate commentary on all of them.
Dot Hill Q3 2010 Analyst Conference Call Summary. First quarter with non-GAAP profits in some time, appears to be on a good projectory with new storage products.
Dendreon Q3 2010 Analyst Conference Call Summary. About as expected, ramped up Provenge sales to the max until they get facility expansion permission.
Onyx Pharmaceuticals Q3 2010 Analyst Conference Call Summary. An exceptional quarter due to a large upfront payment from Japan.
SGI Q3 2010 Analyst Conference Call Summary. Still in the red, but new supercomputer sales are ramping rapidly.
Microchip Q3 2010 Analyst Conference Call Summary. Excellent revenues and profits.
NVIDIA Q3 2010 Analyst Conference Call Summary. Promises of Tegra revenues from future products.
Applied Materials Q3 2010 Analyst Conference Call Summary. Excellent quarter, demand for semiconductor manufacturing equipment remains strong, even the solar division was in the black.
Marvell is way up today after great results reported yesterday. If you think this was a good quarter, wait until revenues for chips for the new smartphones in China kick in next year. See Marvell Q3 2010 Analyst Call Summary.
Tuesday, September 7, 2010
SGI Outlook Improves, Still in the Red
Silicon Graphics International, or SGI, reported seasonally down GAAP revenues of $101.6 million for its 4th fiscal quarter ending June 25, 2010. That is down 6% from the 3rd quarter. It is also up 74% from $58.4 million in the June 2009 quarter, but the high y/y revenue growth is mainly the result of a major merger (Rackable bought SGI, then took the name too), not a bounceback from the recession.
The stock is up recently, I suspect, largely because of an announced $40 million stock repurchase program. At the end of the quarter SGI had $133 million in cash. It burned $15 million in the quarter, but management thinks the company will reach break-even in 2011.
The history of SGI and Rackable is a cautionary tale, but there are always causes for optimism. During the latest analyst conference (See also my SGI Q4 2010 analyst conference call notes) management was emphasizing that the new Altix UV supercomputer began shipping. Stephen Hawking bought one; maybe he knows a thing or two. 14 were shipped, and that is not a full quarter's worth.
Also, notably, in the datacenter business (Rackable's old business), Ebay was signed up as a customer. As you can imagine, Ebay could be a very big customer. The problem is that margins have been low for internet server farms. Management reports that they are beginning to sell more Rackable products to corporations and government, outside the Internet sector, and that they can get higher margins with those clients.
Margins have been a big problem historically for both Rackable and the old SGI. Selling a government agency a supercomputer at less than cost goes against all known business-to-government selling practices. You are supposed to jack up the costs when taxpayer money is at stake. Maybe SGI needs to borrow someone from Boeing, Lockheed Martin, or Northrop Grumman to set their prices.
In the quarter gross profit was $19.6 million, operating expenses were $44.3 million, leaving an operating loss (GAAP) of $24.7 million. If operating expenses could be held flat, even doubling revenue at the current margins would not get the company to break even. Each and every product needs to have profit margins that can cover its share of operating expenses. If management can't get there, and quickly, they might as well close the business down.
As I said, they said they are going to break even in 2011, so maybe there already are good margins built into the Altix UV and other new and upcoming products.
See also my main SGI page at Openicon.com
The stock is up recently, I suspect, largely because of an announced $40 million stock repurchase program. At the end of the quarter SGI had $133 million in cash. It burned $15 million in the quarter, but management thinks the company will reach break-even in 2011.
The history of SGI and Rackable is a cautionary tale, but there are always causes for optimism. During the latest analyst conference (See also my SGI Q4 2010 analyst conference call notes) management was emphasizing that the new Altix UV supercomputer began shipping. Stephen Hawking bought one; maybe he knows a thing or two. 14 were shipped, and that is not a full quarter's worth.
Also, notably, in the datacenter business (Rackable's old business), Ebay was signed up as a customer. As you can imagine, Ebay could be a very big customer. The problem is that margins have been low for internet server farms. Management reports that they are beginning to sell more Rackable products to corporations and government, outside the Internet sector, and that they can get higher margins with those clients.
Margins have been a big problem historically for both Rackable and the old SGI. Selling a government agency a supercomputer at less than cost goes against all known business-to-government selling practices. You are supposed to jack up the costs when taxpayer money is at stake. Maybe SGI needs to borrow someone from Boeing, Lockheed Martin, or Northrop Grumman to set their prices.
In the quarter gross profit was $19.6 million, operating expenses were $44.3 million, leaving an operating loss (GAAP) of $24.7 million. If operating expenses could be held flat, even doubling revenue at the current margins would not get the company to break even. Each and every product needs to have profit margins that can cover its share of operating expenses. If management can't get there, and quickly, they might as well close the business down.
As I said, they said they are going to break even in 2011, so maybe there already are good margins built into the Altix UV and other new and upcoming products.
See also my main SGI page at Openicon.com
Thursday, May 6, 2010
SGI Treads Out Losses, Readies Altix UV
SGI (Silicon Graphics International) is the result of the combination of the old Silicon Graphics with Rackable. Neither company was known for its profitability, so one has to wonder about the management culture of the new company.
For the quarter ending March 26, 2010 SGI reported GAAP revenues of $107.8 million, up 15% sequentially from $94.1 million and up 143% from $44.4 million in the year-earlier quarter. GAAP net income was negative $20.2 million, improved sequentially from negative $23.0 million but worse than the $13.4 million loss year-earlier. EPS (earnings per share) was negative $0.67, improved sequentially from negative $0.77, but worse than year-earlier negative $0.45.
Much of both the revenue and loss increases from year earlier came simply from combining the two companies.
SGI, like many technology companies, now reports non-GAAP revenues that are different from its GAAP revenues. We are used to non-GAAP profits, but why revenues? GAAP now requires that when a package sold includes hardware, software, and support, that some of the revenue needs to be deferred until the software and support are used.
So SGI's non-GAAP numbers largely reflect just reporting the way people expect from past experience. Non-GAAP revenues were $128.9 million, net income negative $10.8 million, EPS negative $0.46.
Losing another $11 million in the quarter does not exactly endear SGI to investors at a time when many electronic technology companies have emerged from the recession and are rapidly ramping profits.
SGI's strategy has involved spending a lot of money updating its outdated computer systems. While it sells a variety of products, it is placing a lot of hope in the Altix UV. This is a supercomputer that scales from single-scientist size up to being the fastest in the world.
The supercomputer market is a specialty market where SGI competes with Cray, IBM, Dell, and a host of other companies. No matter how good Altix UV is, the big question is how well SGI's sales force will execute, and what is the profit margin. For some companies supercomputers are more about bragging rights than profits. SGI can't afford to be that way. They say they have pre-sold a number of Altix UVs. That is good, but what I want to see as an investor is gross profit margins good enough to also cover SGI's operating costs.
With Rackable's leftover cash of $154 million still available at end-of-quarter, today's SGI market capitalization, $250 million, could make it a tech bargain. But only if SGI's management finds a profitable model.
For more details see my SGI fiscal Q3 2010 analyst conference summary.
I am a long-term holder of SGI stock, from investing in Rackable. It has been one of my worst performing stocks. Fortunately I followed that sage advice:
Keep diversified!
See also: www.sgi.com
For the quarter ending March 26, 2010 SGI reported GAAP revenues of $107.8 million, up 15% sequentially from $94.1 million and up 143% from $44.4 million in the year-earlier quarter. GAAP net income was negative $20.2 million, improved sequentially from negative $23.0 million but worse than the $13.4 million loss year-earlier. EPS (earnings per share) was negative $0.67, improved sequentially from negative $0.77, but worse than year-earlier negative $0.45.
Much of both the revenue and loss increases from year earlier came simply from combining the two companies.
SGI, like many technology companies, now reports non-GAAP revenues that are different from its GAAP revenues. We are used to non-GAAP profits, but why revenues? GAAP now requires that when a package sold includes hardware, software, and support, that some of the revenue needs to be deferred until the software and support are used.
So SGI's non-GAAP numbers largely reflect just reporting the way people expect from past experience. Non-GAAP revenues were $128.9 million, net income negative $10.8 million, EPS negative $0.46.
Losing another $11 million in the quarter does not exactly endear SGI to investors at a time when many electronic technology companies have emerged from the recession and are rapidly ramping profits.
SGI's strategy has involved spending a lot of money updating its outdated computer systems. While it sells a variety of products, it is placing a lot of hope in the Altix UV. This is a supercomputer that scales from single-scientist size up to being the fastest in the world.
The supercomputer market is a specialty market where SGI competes with Cray, IBM, Dell, and a host of other companies. No matter how good Altix UV is, the big question is how well SGI's sales force will execute, and what is the profit margin. For some companies supercomputers are more about bragging rights than profits. SGI can't afford to be that way. They say they have pre-sold a number of Altix UVs. That is good, but what I want to see as an investor is gross profit margins good enough to also cover SGI's operating costs.
With Rackable's leftover cash of $154 million still available at end-of-quarter, today's SGI market capitalization, $250 million, could make it a tech bargain. But only if SGI's management finds a profitable model.
For more details see my SGI fiscal Q3 2010 analyst conference summary.
I am a long-term holder of SGI stock, from investing in Rackable. It has been one of my worst performing stocks. Fortunately I followed that sage advice:
Keep diversified!
See also: www.sgi.com
Tuesday, February 2, 2010
SGI Revenues: GAAP v. non-GAAP
SGI (Silicon Graphics International) reported results for its quarter ending December 25, 2009 today, and the numbers look good to me. However, that interpretation requires breaking a general rule.
I like to use GAAP (Generally Accepted Accounting Principle) numbers unless there are good reasons to use non-GAAP numbers for putting a value on a company. Usually revenues are the same, or close, for GAAP and non-GAAP. If there are differences, they appear as non-GAAP net income and EPS. In the past some companies have pushed non-GAAP numbers that misled investors.
In this quarter, for SGI, GAAP revenues were $94.1 million, but non-GAAP revenues were $151.5 million. How can that be? In this case, apparently the higher figure represents payments received on equipment and services sold. But because the high-end computer equipment sold by SGI includes software and maintenance commitments, all of the revenue can't be booked under the accounting rules used.
SGI results from a combination of Rackable Systems and the old, bankrupt Silicon Graphics that took place in 2009. The old SGI was technologically formidable, but had a business culture of putting innovation above profits. I had some worries that the combination might end up with the wrong culture, but so far I have been pleasantly surprised. Rackable bought SGI's assets for a song, and brought a big pile of cash into the combined company. Having shed its debt and some not-so-brilliant business ideas, SGI looks pretty hot. It sells supercomputers and other high end products and services to government agencies and enterprises that need them. Rackable, of course, was known as the leading vendor for energy efficient server farm systems.
Still, there is a way to go before getting too bullish on the future of SGI. Non-GAAP net income was only $5.6 million, or $0.18 per share. While that might seem to justify today's stock price, there are a lot of moving parts involved.
I own some SGI stock (I kept my RACK stock), but would like to see at least a couple more quarters of good revenues and profits before adding significantly to it. It is a classic investor dilemma. If I wait and SGI does well, I'll certainly have to buy in at a higher price than today's. On the other hand, the potential for going back to a string of losses with just an occasional quarter of profits is all too real at this point.
For a detailed account, see my SGI Analyst Conference Summary for 2/2/2010. The new corporate web site is www.sgi.com.
So I had better ...
Keep diversified!
I like to use GAAP (Generally Accepted Accounting Principle) numbers unless there are good reasons to use non-GAAP numbers for putting a value on a company. Usually revenues are the same, or close, for GAAP and non-GAAP. If there are differences, they appear as non-GAAP net income and EPS. In the past some companies have pushed non-GAAP numbers that misled investors.
In this quarter, for SGI, GAAP revenues were $94.1 million, but non-GAAP revenues were $151.5 million. How can that be? In this case, apparently the higher figure represents payments received on equipment and services sold. But because the high-end computer equipment sold by SGI includes software and maintenance commitments, all of the revenue can't be booked under the accounting rules used.
SGI results from a combination of Rackable Systems and the old, bankrupt Silicon Graphics that took place in 2009. The old SGI was technologically formidable, but had a business culture of putting innovation above profits. I had some worries that the combination might end up with the wrong culture, but so far I have been pleasantly surprised. Rackable bought SGI's assets for a song, and brought a big pile of cash into the combined company. Having shed its debt and some not-so-brilliant business ideas, SGI looks pretty hot. It sells supercomputers and other high end products and services to government agencies and enterprises that need them. Rackable, of course, was known as the leading vendor for energy efficient server farm systems.
Still, there is a way to go before getting too bullish on the future of SGI. Non-GAAP net income was only $5.6 million, or $0.18 per share. While that might seem to justify today's stock price, there are a lot of moving parts involved.
I own some SGI stock (I kept my RACK stock), but would like to see at least a couple more quarters of good revenues and profits before adding significantly to it. It is a classic investor dilemma. If I wait and SGI does well, I'll certainly have to buy in at a higher price than today's. On the other hand, the potential for going back to a string of losses with just an occasional quarter of profits is all too real at this point.
For a detailed account, see my SGI Analyst Conference Summary for 2/2/2010. The new corporate web site is www.sgi.com.
So I had better ...
Keep diversified!
Monday, November 9, 2009
Akamai, Microchip, and other conferences
I spent the last two weeks writing the index for Windows Server 2008 Administrator's Pocket Consultant, 2nd Edition by William Stanek. Despite that, I managed to listen to a few analyst conferences and posted summaries for them. Here's the list:
Akamai, AKAM, October 28, 2009
Cisco, CSCO, November 4, 2009
Dot Hill, HILL, November 5, 2009
Microchip MCHP, November 4, 2009
Maxim Integrated, MXIM, October 29, 2009
Onyx Pharmaceuticals, ONXX, November 3, 2009
SGI November 4, 2009
TTM Technologies November 4, 2009
I missed the NVIDIA analyst conference November 5, 2009, but hope to write a summary of that tomorrow.
Looking at the list, I wonder how I managed to get all that done. Mostly I suppose I know the routine so well that summarizing them takes only slightly more time than listening to them.
If you really want to understand a company, you might look at what the executives were saying to analysts a year or two ago. That would be a good test of how well they are predicting reality as against how much they are just blowing smoke an investors. To see a list of all the companies I do analyst summaries of, with links to all the past summaries I have done for each company, just visit my List of Companies Covered for Analyst Conference Summaries page.
Akamai, AKAM, October 28, 2009
Cisco, CSCO, November 4, 2009
Dot Hill, HILL, November 5, 2009
Microchip MCHP, November 4, 2009
Maxim Integrated, MXIM, October 29, 2009
Onyx Pharmaceuticals, ONXX, November 3, 2009
SGI November 4, 2009
TTM Technologies November 4, 2009
I missed the NVIDIA analyst conference November 5, 2009, but hope to write a summary of that tomorrow.
Looking at the list, I wonder how I managed to get all that done. Mostly I suppose I know the routine so well that summarizing them takes only slightly more time than listening to them.
If you really want to understand a company, you might look at what the executives were saying to analysts a year or two ago. That would be a good test of how well they are predicting reality as against how much they are just blowing smoke an investors. To see a list of all the companies I do analyst summaries of, with links to all the past summaries I have done for each company, just visit my List of Companies Covered for Analyst Conference Summaries page.
Wednesday, April 1, 2009
Rackable Systems Eats Silicon Graphics
When I moved to San Francisco in the early 1990's and started meeting the computer graphics crowd, the place everyone said they wanted to work was Silicon Graphics. Not only was that where the cutting edge lay, it was also seen as a smart career move. Surely, in a few years, Silicon Graphics would surpass HP and then Intel and IBM.
It did not work out that way. Today Rackable Systems (RACK) announced it would buy Silicon Graphics (SGIC) for about $25 million. While that is certainly a bargain basement price for a treasure chest of intellectual property, I cannot assume that Rackable will do well with the acquisition.
Silicon Graphics' (aka SGI) traditional problem is running a business that actually makes money. That is exactly the problem Rackable Systems has had these last few years. Rackable has a substantial amount of cash in hand, but it was mostly generated from its initial IPO, not from profits. Rackable grew rapidly and had some profitable quarters a few years back, but then they got shoved around by bigger competitors, notably Sun, HP, Dell, and IBM. I think Rackable on its own could be profitable again if IT spending picks up some time this year, but this acquisition will create distractions and a lot of new variables to manage. So we have the dilemma of a company with a tremendous opportunity that could turn into a serious downside.
What are Rackable shareholders (that includes me) getting for their $25 million in cash? The latest results for SGI showed revenues of $82.8 million and a GAAP net loss of $49.2 million and an EBITDA of negative $17.3 million. That is no way to run a business. And it is not just from the recession. Once upon a time SGIC's market capitalization was over $1 billion.
So the first thing Rackable management should do is can as much of SGI's management as is necessary. Cut costs to the bone. Assuming an $80 million per quarter run rate, if you can't generate $8 million of profit on that, you should get out of the business. If there is revenue that can't be made to generate a profit, jetison it.
Having watched variously poorly managed technology companies for years, I will ball park what I would expect to see if I were a Rackable manager reviewing SGI. Sure, if you spend $1 million on a product, and it is a good product, and offer it for sale at $800,000, someone is going to buy it. What you need to do is price the product at $1.1 million. If your customer will not pay $1.1 million for the product that cost you $1 million, you don't need that customer. So first you try to raise the price, and if that does not work, you close that product line down. Let the managers and workers find jobs elsewhere (good luck). Or if they want to keep their jobs, and sell their product for $800,000, they need to find ways to reduce product cost, and if necessary give back enough of their compensation package to make that work. There a business people lacking high school diplomas who could tell you this; MBAs could tell you this; but technology guys often are mesmerized by their toys and forget they are in business.
SGI has some pretty nice products. Supercomputers. Those should be priced to generate a profit. Graphics software. Why should that not make a profit? Servers - lots of companies make profits selling servers. Professional services - how can you not make profits on professional services? (Technology geniuses have found a way to do that: pay your staff more than you charge the clients! Fail to take overhead into account!)
Rackable's last acquisition did not go well. Management said that RapidScale storage technology would be the Next Big Thing (back in 2006) but it was a failure that apparently could not be sold once Rackable no longer wanted it.
On the bright side, Rackable does have some pretty amazing talent, so maybe management can turn the company around and make hay with the SGI assets too. Rackable got big quickly because it took the need to lower power consumption at data centers seriously. It is still very, very good at that. It has clients like Amazon, Microsoft, Facebook, and Yahoo, and it has been making advances internationally and in new specialties like Defense and Oil exploration.
SGI looked like it should be valuable in the 1990's because it put technology first, before profits. Some times that works, but usually it does not. The best business model wins when the technology is good enough. The best business technology solves enterprise problems at a price that beats the alternatives. Profits have to be part of the model, or else you can't keep up research and development efforts. The leading edge wanders off to ATI or NVIDIA.
Because SGI is selling itself off through a bankruptcy, rather that directly with a merger, it is possible that debts will disappear. This, in itself, might help it move towards profitability, but even if it is the case, can't change the need for better management.
I'm not selling my Rackable stock, but I'm not buying more right now either. I'd like to see what Rackable does with the SGI assets over the next six months or so. If Rackable runs SGI like SGI ran SGI, this merger will sink it.
See also my Rackable Systems page, with links to Rackable analyst conference summaries.
It did not work out that way. Today Rackable Systems (RACK) announced it would buy Silicon Graphics (SGIC) for about $25 million. While that is certainly a bargain basement price for a treasure chest of intellectual property, I cannot assume that Rackable will do well with the acquisition.
Silicon Graphics' (aka SGI) traditional problem is running a business that actually makes money. That is exactly the problem Rackable Systems has had these last few years. Rackable has a substantial amount of cash in hand, but it was mostly generated from its initial IPO, not from profits. Rackable grew rapidly and had some profitable quarters a few years back, but then they got shoved around by bigger competitors, notably Sun, HP, Dell, and IBM. I think Rackable on its own could be profitable again if IT spending picks up some time this year, but this acquisition will create distractions and a lot of new variables to manage. So we have the dilemma of a company with a tremendous opportunity that could turn into a serious downside.
What are Rackable shareholders (that includes me) getting for their $25 million in cash? The latest results for SGI showed revenues of $82.8 million and a GAAP net loss of $49.2 million and an EBITDA of negative $17.3 million. That is no way to run a business. And it is not just from the recession. Once upon a time SGIC's market capitalization was over $1 billion.
So the first thing Rackable management should do is can as much of SGI's management as is necessary. Cut costs to the bone. Assuming an $80 million per quarter run rate, if you can't generate $8 million of profit on that, you should get out of the business. If there is revenue that can't be made to generate a profit, jetison it.
Having watched variously poorly managed technology companies for years, I will ball park what I would expect to see if I were a Rackable manager reviewing SGI. Sure, if you spend $1 million on a product, and it is a good product, and offer it for sale at $800,000, someone is going to buy it. What you need to do is price the product at $1.1 million. If your customer will not pay $1.1 million for the product that cost you $1 million, you don't need that customer. So first you try to raise the price, and if that does not work, you close that product line down. Let the managers and workers find jobs elsewhere (good luck). Or if they want to keep their jobs, and sell their product for $800,000, they need to find ways to reduce product cost, and if necessary give back enough of their compensation package to make that work. There a business people lacking high school diplomas who could tell you this; MBAs could tell you this; but technology guys often are mesmerized by their toys and forget they are in business.
SGI has some pretty nice products. Supercomputers. Those should be priced to generate a profit. Graphics software. Why should that not make a profit? Servers - lots of companies make profits selling servers. Professional services - how can you not make profits on professional services? (Technology geniuses have found a way to do that: pay your staff more than you charge the clients! Fail to take overhead into account!)
Rackable's last acquisition did not go well. Management said that RapidScale storage technology would be the Next Big Thing (back in 2006) but it was a failure that apparently could not be sold once Rackable no longer wanted it.
On the bright side, Rackable does have some pretty amazing talent, so maybe management can turn the company around and make hay with the SGI assets too. Rackable got big quickly because it took the need to lower power consumption at data centers seriously. It is still very, very good at that. It has clients like Amazon, Microsoft, Facebook, and Yahoo, and it has been making advances internationally and in new specialties like Defense and Oil exploration.
SGI looked like it should be valuable in the 1990's because it put technology first, before profits. Some times that works, but usually it does not. The best business model wins when the technology is good enough. The best business technology solves enterprise problems at a price that beats the alternatives. Profits have to be part of the model, or else you can't keep up research and development efforts. The leading edge wanders off to ATI or NVIDIA.
Because SGI is selling itself off through a bankruptcy, rather that directly with a merger, it is possible that debts will disappear. This, in itself, might help it move towards profitability, but even if it is the case, can't change the need for better management.
I'm not selling my Rackable stock, but I'm not buying more right now either. I'd like to see what Rackable does with the SGI assets over the next six months or so. If Rackable runs SGI like SGI ran SGI, this merger will sink it.
See also my Rackable Systems page, with links to Rackable analyst conference summaries.
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