Analyst Conference Call Summary

Silicon Graphics International

conference date: May 3, 2011 @ 2:00 PM Pacific Time
for quarter ending: March 25, 2011 (third fiscal quarter 2011)

Forward-looking statements

Overview: Strong for a Q1 (fiscal Q3), with good non-GAAP earnings.

Basic data (GAAP) :

Revenues were $143.7 million , down 19% sequentially from $177.5 million, but up 33% from $107.8 million in the year-earlier quarter.

Net income was negative $1.7 million, down sequentially from $3.7 million, but improved from negative $20.2 million year-earlier.

EPS (earnings per share) were negative $0.05, down sequentially from $0.12, but a big improvement on the negative $0.67 year-earlier.


Re-affirmed fiscal 2011 non-GAAP EPS between $0.40 and $0.50 per share. Revenue between $600 and $625 million, with gross margins between 27% and 30%. Operating expense $171 to $175 million.

Conference Highlights:

Non-GAAP results were: revenue $135.8 million, net income $2.3 million; EPS $0.07, down sequentially from $0.44, but up from negative $0.36 year-earlier.

Revenue was a record for a Q3. "Fastest start to a calendar year we have ever experienced." Closed the acquisition of SGI Japan in the quarter and won considerable new business in the first 45 days after the close. Experiencing no supply chain disruptions from Japan. Will retire acquired Japanese debt as it comes due.

SGI ArcFiniti data archive solution introduced in the quarter. Rackable now available pre-configured for hadoop.

Public, cloud and manufacturing sectors all had strong performance.

Channel business contributed 21% of revenue. International business was 34%. Services contributed 28% of revenue. 32% was storage, 68% was for servers. 48% of revenue was from the public segment. Copan line contributed to higher storage % than usual.

3M was one of the first UV with Windows wins.

Gross margins improved y/y to 28.2% GAAP, 29.9% non-GAAP.

Cash ended at $133.8 million, up $22.3 million sequentially. $13.7 million cash flow from operations.

Cost of revenue was $103.2 million, leaving gross profit of $40.5 million. Operating expenses of $44.3 million included: R&D $13.3 million, sales and marketing $16.6 million, general and administrative $12.4 million, restructuring $0.9 million, and acquisition-related $1.1 million. Loss from operations was $3.8 million. Other income was $2.9 million. Income tax provision $0.7 million.

Size of technical computing market by 2014 is estimated at $24.7 billion.

There were two greater-than-10% customers: and the U.S. government.

New SGI is devoted to keeping costs down, a key differentiator from the old Silicon Graphics corporation.

Making investments for Intel's next CPU architecture.


Storage business expectations, NetApp situation? Partnership will remain in place.

Japan execution? Increased outlook for year when we made the acquisition, and are keeping that guidance. However, the first few weeks after the earthquake were disruptive. Now we feel we can stay with the plan.

Hadoop configuration? We are bringing our IP for density and backplane technology to bear. We can expand the offering to the greater market on a very cost-effective basis. ArcFiniti will deliver a consistent archive platform that meets market needs. This should help improve storage gross margins.

Compute segment decline in Q3 from Q2? Actually, given seasonality, compute business was good for Q3. Q4 midpoint is about $160 million and it should be a relatively strong compute quarter. Quarter variance is often a question of the timing of deals.

Exposure to government? Slightly down % Q3 over Q2, but growing business y/y. Storage and compute needs of government are increasing. We had 4 ICE Cube system wins in the quarter. We anticipate growing our federal business y/y. We are taking market share in the public space.

Copan competes against EMC and HP.

Altix UV remains highly differentiated in the market. We hope to add to our success in the scientific community by selling more into the business community. Altix ICE is currently mid-market, but next generation will have about 20 times the capabilities, so we see a market opportunity there.

Itanium opportunity? We are focused on technical computing, not so much picking up transactional systems based on Itanium. But where Itanium was used for technical computing, we would be very interested in those opportunities.

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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2011 William P. Meyers