Analyst Conference Call Summary

conference date:February 2, 2011 @ 2:00 PM Pacific Time
for quarter ending: December 24, 2010 (second fiscal quarter 2011)

Forward-looking statements

Overview: Best quarter in history, complete with GAAP profits.

Basic data (GAAP) :

Revenues were $177.5 million, up 57% sequentially from $112.9 million and up 89% from $94.1 million since the year-earlier quarter.

Net income was $3.7 million, up sequentially from negative $11.2 million and up from negative $23.1 million year-earlier.

EPS (earnings per share) was $0.12, up sequentially from negative $0.37 and up from negative $0.77 year-earlier.

Guidance:

Updated fiscal 2011 guidance to revenue between $570 and $595 million, gross margin 27% to 30%, and positive EPS.

Conference Highlights:

Record revenue and profits for SGI. Raised guidance for fiscal 2011. Could not be more pleased with the team's performance.

Altix UV continued its success, shipping to major corporate and government clients. Sectors with good performance included public, cloud, manufacturing and telco. Global spending on technical computing is improving, and the Altix UV market is expanding.

Rackable, ICE, and storage all did well. Major customers in the quarter included the U.S. Postal Service, Amazon.com, Microsoft, Chrysler, Slide, MDBA, HLRN, and national defense. Customers like how SGI makes it easier to manage multiprocessor era. SGI has also improved it competitiveness in Windows environments.

80% product revenue, 17% of that was storage. 20% of revenue was from services.

Operational discipline has resulted in strong margins in addition to revenues.

Non-GAAP revenue was $185.9 million, up 43% sequentially and 23% y/y. Differs from GAAP revenue because of accounting for services and software included in hardware sales. Non-GAAP gross profit $55.9 million; margin 30.1% (up 1.73% q/q); operating profit $16.0 million; operating margin 8.6%; net income $13.6 million or $0.44 per share. Stock based compensation excluded was $1.3 million.

Channel business was 26% of revenue. International sales were 47% of revenue. Now has 180 sales partners. Only one customer represented > 10% of revenue.

Cash and equivalents balance ended at $111.5 million; no debt. Quarter increase was $12.7 million. inventory was reduced to $79.1 million, down about $25 million sequentially. Accounts receivable rose about $7 million sequentially and prepaid expenses rose $4 million. $2.6 million was spent on share buy-backs at average of $7.77 per share.

Cost of revenue was $125.2 million, leaving gross profit of $52.3 million. Operating expenses of $43.4 million included $13.4 million for R&D, $18.0 million for sales and marketing, $11.8 million for general and administrative, and $0.2 million for restructuring. Leaving income from operations of $9.0 million. Other expense was $4.5 million.

Revenue by sector: Public 62%; cloud $15%; manufacturing 6%; telecom 5%; other 12%.

1299 headcount, reduced despite scaling of company.

NOLs (net outstanding losses, reduces taxes) are now $103.5 million for federal taxes.

Q&A:

Prism XL opportunity? Initial reaction is very favorable. The high-density GPU product, but it is on a longer sales cycle because it is new.

Altix UV outside of government demand? Three basic markets: traditional scientific/HPC; big data, where we compete with Oracle Exadata and others; and RISC replacement, transitioning off Itanium platform. Each is at least a $1 billion market.

Will you raise pay now that you are profitable? Yes, and that is included in our guidance.

March seasonality? We are running ahead of plan. We don't provide quarterly guidance because of the size of individual sales. We expect revenues in the second half of fiscal 2011 to be higher than they were in the second half of fiscal 2010. So $125 to $140 million per quarter would be a range.

Reason for storage growth? Storage was $26 million roughly. Combination of COPAN, EBOD, and LSI relationship.

Part of the reason we work on an annual basis, and fiscal Q2 was so good, was the timing of acceptances.

We expect operating expenses to grow more slowly than revenues, creating leverage.

Services as a percentage were lower than usual because of strong hardware sales in quarter. In second half of fiscal 2011 services should be a higher percentage.

We sold a "couple of" ICE Cubes last quarter. Interest remains high.

OpenIcon Analyst Conference Summaries Main Page
SGI Investor Relations page
www.sgi.com
Openicon Rackable main page

Search

More Analyst Conference Pages: