HPC in the Cloud: SGI Posts Q2 Loss as Revenues Rise

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February 08, 2012

SGI Posts Q2 Loss as Revenues Rise

Robert Gelber

Currently run by its board chairman and interim CEO Ronald Verdoon, the company released its Q2 financial report for fiscal year (FY) 2012. SGI struck out with a $2.3 million dollar loss and investors did not seem to be pleased as they saw the stock drop nearly four dollars after the earnings release. Further, SGI reported a decrease of $20.4 million in working capital compared to the same quarter in 2011.

The report tries to paint a rosy picture though, touting higher revenues ($17.7 million more than the same time last year and $16 million more than in Q1) as well as some big customer wins at Kyoto University, NASA, Poznan Supercomputing Center, and iVEC, among others. The also trumpeted the posting of a world record Hadoop benchmark, but of course, that didn't add anything to the bottom line.

The company pointed to an unsettled economy in Europe, high European business costs, and lapsing high margin contracts as the source for some, but not all of the red ink. The remedy here, according to SGI, is to restructure their European operations as they search for a path to profitability. Aside from European rejiggering, the company hopes that an update to Intel Romley-based products, and a focus on new storage and the SGI Hadoop starter kit will help staunch further bleeding.

Still, something seems to be amiss when anyone brings in a tidy profit one year, increases revenue the next year and ends up experiencing a sizeable loss. It’s almost like comfortably making payments on a modest family sedan, getting a near 10 percent raise and deciding to buy a new house and a pair of sports cars.

After former CEO Mark Barrenechea departed last December, SGI has been running without a permanent chief at the helm. The current leadership and board are working to remedy that, as well as renewing their focus on the usual business cliches, namely expanding market share and aligning business for sustainable profit growth.

SGI continues to be bullish on the revenue side, bumping their Q1 projections for FY 2012, from $740-$780 million to $770-$800 million. At the same time, they lowered their guidance on earnings per share, from 15 to 30 cents in the black to between 15 and 30 cents in the red. They also expect somewhat lower gross margins for the year, cutting their Q1 guidance a couple of a points to between 26 and 28 percent.

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