It is becoming ever clearer that the computer and semiconductor sectors are heading into choppy water and that nasty surprises lurk in every thicket. If Escom AG’s warning is anything to go by (CI No 2,820), the German market for personal computers in the fourth quarter was even worse than a rather soggy US one, and now from another surprising quarter comes a warning of unmet expectations. Silicon Graphics Inc, widely regarded as a super-high flyer by virtue of its dazzling multimedia technology, yesterday warned that net profits for its second quarter to December 31 will likely be only 30 cents a share, compared with 34 cents a year ago. Turnover growth has been running at around 40% year-on-year, and that is the culprit: Silicon Graphics does not expect sales of more than about $675m, which represents something like a crash into the buffers, because it amounts to a growth rate of not 40% but just 22%. The company is blaming both the North American and European markets for the shortfall, although there is one special factor in the shape of the ridiculous posturing in Washington between the Administration and Congress over the budget: the company said there was a slowdown in sales to the US government, caused in part by the budget uncertainties. The company says that business with its OEM customers – Tandem Computers Inc is prominent among these – was also weak. European results were affected by slowdowns in the major economics of Germany, France and the UK, it said. The mean of analysts’ forecasts for the quarter was $0.42 a share, so the market took the announcement badly, and in morning trading, the shares shed $4.50 at $23 even. Despite these disappointments, said chief executive Ed McCracken, We believe that our revenue growth rate indicates increasing market share and that our operating profitability compares favourably with that of our industry, said McCracken. Our fundamental competitive position remains favourable, and the response to new products like the Indigo2 Impact workstation, which shipped in volume in the second quarter, has been outstanding. We will also be announcing later this month new products that will underscore our leadership position in high performance computing. We have adjusted our planned expense growth while we ramp up these new products. All of which, while being true enough, will cut little ice with investors expecting more from the company.
