Silicon Graphics Inc’s new management admits the company’s slow turnaround is about a quarter behind the schedule it set in April (CI No 3,389). This quarter, the first of its fiscal 1999, Merrill Lynch & Co’s Steve Milunovich figures SGI’s revenue will be down around $627m with a significant loss, perhaps $0.45 per share. CFO Steve Gomo concurred with this ballpark estimate. Revenue will increase sequentially through the rest of the year Gomo said – but not on a year-over-year basis – and the second half of the year will be profitable, though the sense was that this may not be enough to put the company into the black for the year as a whole. Gomo expects revenue to grow faster than the industry average which SGI figures is between 5% and 10% for PCs (well, if you’re not Dell Computer anyway) and 10% to 15% in the server market. In SGI’s new business model gross margins are targeted to be 37%, down from 50% under the old model; operating expenses are supposed to come in at 29%, down from 40% (financial 1998 came in at a whopping 58%); while operating profit should be 10%, the same as under the old model. Headcount has been reduced – CEO Rick Belluzzo is personally having to approve all hires, causing some bottlenecks, management observes. A minority interest in MIPS has been sold, supercomputer investment cut by 50%, manufacturing capacity closed and/or outsourced, expenses controlled, and the product roadmap rationalized. Furthermore SGI will close two of its four remaining Silicon Valley manufacturing plants and outsource much more manufacturing, including some of its server requirement, Gomo says.
