I have listened to the conference call, and overall I am every encouraged. But there are a few lemons. One big one:
1. Two more quarters of losses -- primarily because the NT workstation will not have financial impact until Q3 for 99.
2. Total Q4 Revenue was 773 million vs. 1162 million last year. Since Q4 is the strong quarter, the 9% increase against last quarter is not too significant.
3. 700 jobs will get the axe, mostly from the Cray folks.
4. Increasingly I am realizing what a dismal mistake it was to try to blend SGI and Cray, although I favored the idea at the time, and it still might pay off someday. I suspect Cray will try to build revenue by introducing a Cray server product, and that it may be quite successful, although not immediately.
5. The great bulk of restructuring charges -- $205 million -- are non-recurring. No more restructuring charges are anticipated in Q1 next year. Without those charges, SGI's losses would be quite modest. I figure Wall Street was pretty much guessing at those charges anyway, so I think they will forgive an earnings miss on the downside for this reason.
6. Belluzzo's voice did not appear in the call. Maybe this is because he still accidently refers to the company as "HP"
7. They guessed (inaccurately, I suspect) that the Visual PC might add 500 million to fiscal 99, all in the last half of the year. I'll bet it could be much better.
8. Cash position remains strong. I was gratified to see that the $50 million earned from the MIPS IPO was not yet on the balance sheet since it was a July transaction, so I retract my worries in the earlier post about cash levels dropping. SGI still has in excess of $750 million to play with.
9. Based on the call, I think we might see the stock eventually move up a bit to the $17 level and remain there until rumors of new products begin to push it higher. I thought the tone of the call was encouraging -- Belluzzo has been aggressive about hacking off parts of the company perceived as non-profitable, and the charges were responsible for the downside loss. Belluzzo is a nit-picking accounting type, and that is the kind we shareholders like to trust. The company's cash position is still strong, but SGI is struggling against the tide with its UNIX workstation business, and patient investors will just have to wait.
10. Nobody asked about the Merced chip delay, but it was clear all the analysts had been privately briefed in the previous conference about the details of the planned launch date for the Visual PC. They were rather guarded about their references to the date. Anybody know the details here?
Sell-off tomorrow? I hope so . . . I'll pick up a bit more. But I am wondering if SGI's special position in the Computing Universe is slowly being squeezed out of existance as the company continues to shrink . . . albeit to a more profitable size. To me SGI looks like a pretty good investment over the next 6 to 8 month horizon. After that, we'll have to see how good the Visual PC really is. It might be really, really good.
My opinion is free. Take it for what its worth. I'm staying on board for a while longer. --JD |
