Analyst Conference Summary

Silicon Graphics International

conference date: May 4, 2010 @ 2:00 PM Pacific Time
for quarter ending: March 26, 2010 (3rd fiscal quarter 2010)

Forward-looking statements

Overview: Continued revenue improvements balanced by continued losses.

Basic data (GAAP) :

Revenues were $107.8 million, up 15% sequentially from $94.1 million and up 143% from $44.4 million in the year-earlier quarter.

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.


Reaffirm fiscal year 2010 $500 million revenue with high 20s gross margin.

Conference Highlights:

Rackable acquisition of Silicon Graphics occurred about a year ago. Doing better than plan. All strategy points are being delivered on. 6.3% non-GAAP gross margin has grown to 27.5% (26.8% GAAP). COPAN acquired for $2 million. Storage is now a key SGI focus. Installed base is now 6000 customers. As revenues scale costs should grow at a slower pace.

Altix UV, "world's fastest computer" to be delivered in June.

Sales team continues to be built with world-class talent. Expanding coverage in China, India and Russia. New products are very competitive in every area of technical computing. Channel sales also being grown, were 25% of revenues in quarter.

Non-GAAP numbers: revenue was $128.9 million, net income was negative $10.8 million; EPS negative $0.46.

$3.2 million cash flow from operations in quarter. Cash and equivalents ended at $154.8 million, flat sequentially. Inventory decreased to $76.2 million, down $9.2 million, continuing the trend. Accounts payable increased to $39.9 million, accounts receivable increased to $81.8 million. Deferred revenue increased to $79.7 million.

Amazon is the only >10% customer, at 19% of revenue.

31% of revenue was from services. 33% from international sales.

By segment government and defense 27%; Internet 20%; higher education and manufacturing 25%.

Cost of revenue was $78.9 million, leaving gross profit of $28.9 million. Operating expenses of $46.1 million included $14.7 million for R&D, $16.7 million sales and marketing; $13.3 million general and administrative; $1.4 million restructuring. Loss from operations was $17.2 million. Other income negative $2.5 million.

Expecting higher expenses due to continued R&D and for COPAN (at about $2 million per quarer).

1317 employees at end of quarter.


Operating profit focus? We don't have guidance for fiscal year 2011. Profitability is a long-term goal. On our next call we'll talk about the 2011 plan.

Altix UV? It is a cornerstone for our 2011 plan. We have already announced a number of wins. General availability is going to be the current quarter. Revenue would start to be booked in Q1 2011.

Deferred revenue increases? Most is due to the software revenue recognition rule, but some is hardware. The fact that it is growing is a good thing.

Internet vertical? It remains strategic for us. We will compete for the business. As we diversified our installed base, that was good. The 19% Amazon, 20% Internet overstates Amazon because one is a GAAP number, the other is non-GAAP.

Bad debt expense? It was not material, but a charge of a few hundred thousand for a single receivable for a legacy SGI customer, from pre-merger.

We believe we can become break-even or profitable with this expense structure.

Transitioning out of Itanium for large shared memory, to Nehalem. It can be a catalyst for our business in 2011. New AMD processors will help as well.

Weak fourth quarter as remainder for 2010 guidance? No, would not read that into our confidence in hitting the guidance, but not updating it.

We are keeping expenses low, looking to expand gross margin, but also investing for growth, including in services.

Storage? About 17% of overall business, and 22% of product business. COPAN should expand that. Goal is storage 30% of revenues.

Competition? Market is evolving. Oracle taking Sun into database appliances, which is a good strategy, but also provides an opening for SGI. Dell continues to be the volume price competitor. Cray has the challenge of being concentrated in big deals in a specific market.

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Copyright 2010 William P. Meyers