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
Showing posts with label Altix UV. Show all posts
Showing posts with label Altix UV. Show all posts
Tuesday, November 29, 2011
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/
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
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
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