Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Silicon Graphics, Inc. (SGI) -- Ignore unavailable to you. Want to Upgrade?

To: Naveen Kumar who wrote (4872)	5/15/1998 12:16:00 PM
From: John M. Zulauf	Read Replies (1) \| Respond to of 14451

> how is the new CEO doing pretty well. Since the beginning of the SGI troubles I've had a couple of "sanity" metrics I've been watching. One is product mix and the other is memory and peripheral pricing. Both have of these have made marked moves in the last and current quarter -- making SGI more competitive in the current marketplace, and positioning SGI better for the future. Memory and peripheral pricing may seem to be strange way to judge the performance of a computer company -- but think of it this way. As a company grows larger, some VP gets in charge of pricing these things... and his or her performance gets tracked to the revenue created by them. In a insanely growing market -- as UNIX was for the period 85-96, where you have untouchable products -- as SGI did -- it made good sense to maximize the revenue charging a premium for these items. Here's the dark side though, the money made through the peripherals and memory gets seen as a profit center -- even though it's just an expression of the under-pricing/over-demand for of the main product. However, when market growth slows, and competitiveness grows, the under-pricing shrinks, margins tighten - BUT this VP -- whose job rating depends on the $ volume from the memory and peripherals has NO incentive to lower the prices from the premium that has been set -- it's not his or her margin that's shrinking. If management mistakenly sees this anachronistic pricing incorrectly as a "profit center" instead of the competitive disadvantage that it is they will not challenge or change the policy. However, this just makes things worse and far from increasing the bottom line, it decreases it -- and increases the defection rate among the exsisting clientele. This is what I call "bucket thinking" and usually indicates upper management that is out-of-touch or in denial. A good new CEO (like Rick for example) comes in a slashes through the bucket walls, gives the responsible VP a stern finger wagging in the face (or a kick in the butt -- or out the door -- as appropriate), and cuts the prices of these items to return a reasonable margin (or less than for a competitive advantage). This is executive sanity at it's finest. Mind you I'm not saying that anything like this really happened, and similarity to persons living or dead is unintentional (yadda, yadda, yadda). I'm just saying that when chronic competitive disadvantages get resolved -- it's usually a good sign that a new CEO is in touch, in gear, and doing the right things. unofficially (and without internal information... just call a sales rep for a quote) john