Shares of Silicon Graphics (NYSE:SGI - news) , a maker of high-powered computer workstations used by engineers and graphic designers, grafted on $1 7/8 to $16 7/8 following a smaller-than-expected second quarter loss. Revenue fell to $685 million from $851 million a year ago. The reported loss of $20 million, or $0.11 per share, benefited from an $8 million markdown in previously announced restructuring costs. Backing that out, Silicon Graphics lost $25 million, or $0.14 a share. That was an improvement over the $31 million, or $0.17 per share, lost in the year ago period. It also bested the consensus estimate calling for a $0.19 per share loss. The company pared $49 million in operating expenses year-over-year. Investors are taking the results as another sign that the company's turnaround is proceeding.
Silicon Graphics was a one-time high-tech darling that provided the tools for Steven Spielberg to create those larger-than-life computer generated dinosaurs in Jurassic Park. In recent years, however, the company has itself become a dinosaur, churning out expensive UNIX workstations based on its own Irix operating system and RISC chips made by MIPS Technologies (Nasdaq:MIPS - news) . UNIX still rules the high-end, with Sun Microsystems (Nasdaq:SUNW - news) claiming over half the total UNIX market. But workstations based on this older operating system have been steadily losing market share to less expensive boxes based on Intel (Nasdaq:INTC - news) chips and running Microsoft's (Nasdaq:MSFT - news) Windows NT.
Research outfit Dataquest has reported that in the third quarter of 1998, UNIX workstation unit shipments increased 15% while revenue dipped 20%. Meanwhile, Windows NT workstation unit shipments increased 143% while revenue rose 66%. While Hewlett Packard (NYSE:HP - news) still rules the NT space, price deflation is favoring direct seller Dell (Nasdaq:DELL - news) , which claimed 20% of the NT market in the September period, nearly double its previous share. That knocked Compaq (NYSE:CPQ - news) out of the number two slot, as its market share plunged from 34% to 17%.
Investors have grown more enthused about Silicon Graphics because it has decided to back away from its proprietary workstations and focus on the NT market. After some delays, the company recently rolled out its Visual workstations, its first NT machines, with one running on a Pentium II (price: $3,395) and the other on Intel's Xeon chip (price: $5,995). The machines are said to enjoy considerable speed advantages over comparable NT/Intel machines thanks to Silicon's Lithium chip, which allows the processor to interact better with the video components. It's still an open question, though, whether the company's proprietary enhancements of NT will ultimately prove to be a competitive advantage or not.
Still, the company now sports a market cap around $3.2 billion, trailing sales of $2.7 billion, and $359 million in cash net of debt. Moreover, its 83% stake in MIPS, currently valued at $1 billion, should be sold by September 2000. Even near its 52-week high, Silicon Graphics might be worth a closer look.
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