Die-hard SGI(NYSE: SGI) investors got a bit of good news today as the Mountain View, California company reported a fiscal second-quarter loss of $1 million, or $0.01 per diluted share.
Analysts polled by IBES International expected losses of $0.07 per share, with a loss of $0.01 on the high end of estimates. The company performed well in a tough quarter as many businesses froze technology purchases fearing the worst from Y2K issues.
Revenues fell 5% to $648 million. Results for the quarter exclude a $16 million previously announced restructuring charge.
Bob Bishop, SGI's chairman and chief executive, said the company will continue to focus on its core business of servers, workstations, and the Internet as a way to return to profitability and growth.
Founded in 1982, SGI is best known for making sophisticated computers used to create special effects for movies such as "Titanic" and "Jurassic Park."
But it hasn't been easy being an SGI shareholder of late as it spent much of the last three years in the red.
After establishing a solid reputation in the field of 3-D graphics, high-end computing, and performance workstations, SGI watched competitors using standard Wintel machines eat away at its market share. SGI shares fell from nearly $50 in late 1995 to close yesterday at $10 5/8.
About two years ago, management brought in highly regarded Hewlett-Packard(NYSE: HWP) executive Richard Belluzzo to return the company to profitability, but Belluzzo left abruptly last summer after just 18 months and a failed attempt to popularize a new line of Wintel-based workstations. (SGI built a name for itself designing its own chips, software, and hardware.)
There's never been much debate about the strength of the company's technology, but SGI hasn't been able to carve out a profitable space selling to customers in niche spaces such as the government, education, manufacturing, and entertainment industries. Basically, lower-priced Wintel competitors have attacked its market share and forced the company to cut jobs, reorganize, and consolidate.
Much is said about SGI's book value, and the fact that it trades for less than the sum of its parts. It owns 65% of RISC processor designer MIPS Technologies(Nasdaq: MIPS), a stake worth about $1.3 billion. In addition, SGI has more than $600 million in cash, equivalents, and short-term investments, and produces a valuable line of servers and supercomputers. Tallying this assortment of businesses, it's possible to get a per-share value of more than $13.
Is the spread worth the risk? Probably not. Rather, loyal SGI investors need to ask whether Bishop can reinvigorate the brand and find a way to return the company to growth and profitability. He's taken tough steps in the right direction, slicing $240 million in costs out of expenses last year, outsourcing manufacturing, and consolidating facilities. SGI has a solid balance sheet, and the company expects to be profitable in the fourth quarter.
But how many attempted comebacks does it have in its bag of tricks, especially in the cutthroat hardware and software industry? The heart of SGI's business is its line of Origin servers, where growth has not yet been robust enough to offset weakness in its Unix-based workstation and vector supercomputer business.
Until it's clear the company has some traction versus tough competitors such as Sun Microsystems(Nasdaq: SUNW), Hewlett-Packard, and even Dell(Nasdaq: DELL), it's probably best to watch from the sidelines.
