Jeff -
>What hard evidence is there that SGI "is moving into SUNW and HWP's server turf
> with the Origin line," i.e. do you have any data or strong anecdotal evidence that
> SGI is gaining share in that segment?
The most solid evidence I have now is that during the conf call they stated that sales of what I interpreted to be server products grew this FY by over 90%. The annual report from last year stated that 7% of their revenue was from "database/financial" and 14% was labeled as "other". Who knows what "other" means because it could include the internet commerce sector if it is not database and financial related. Anyhow, if you use a number like 10% for database/financial/internet commerce, 90% increase puts them at nearly 20%. I was also paying close attention to the conf call for comments about internet commerce and database market and there were quite a few. Particularly the $25M order from AOL.
The anecdotal evidence is what I am seeing through my consulting. The problem is that Sun isn't scalable enough and HP is too expensive. A couple of Power Challenges were sold last year in these parts because 1) Sun couldn't meet the bid spec because of the memory limit and 2) HP was more expensive, less scalable, and less performance than SGI.
Market penetration is going to be difficult here. Sun and HP own the market and they have a lot of momentum. But IMO people are starting to look hard at SGI. Once people start to present more papers at the big national conferences like Oracle World about SGI projects, more people will buy. Its going to take some time but I think SGI can pull it off but marketing and manufacturing have to come through. Said one analyst in the conf call: "Demand is not going to be the problem"
>As interesting as the recent conference call was, I find it galling that SGI management
> was so coy about breaking things down into comprehensible hard data about the
> various product lines, how they are doing competetively, and just where all the
> profit-robbing expenses lay.
One thing at a time here. About data on product lines, how many lines at the conference call do you think Sun and HP had? I agree with SGI not to give away any details that would affect them competitively. A recent Salomon Bros report stated that "We believe that the O2 workstation has forced HP and Sun to take price actions to match the O2's price/performance". I don't recall the last time that Sun and HP took price actions for anything SGI produced.
On profit-robbing expenses... They stated in the conf call that expenses were ramped up with the expectation of revenues. The last time SGI came out with a new product line, IMO it languished for 6-9 months while SGI built their marketing force and they lost revenue. Investors howled back then. IMO they tried to avoid it this time. The very interesting comment was that up to 80% of the revenues in the last few quarters were generated in the last month of the quarter. Since they missed the Octane production date by just a few weeks, it had a devastating effect on earnings.
While most shareholders are trying to shove McCracken out the door, I applaud his efforts for strategic planning. Sure it hurts profitability short term but positions the company well for the long haul. Personally I avoid companies that are only short term minded. They eventually lose to companies that have the guts to make tough long term decisions.
Regards
Jeff |
