SGI 1 year later

Schnitger Corp. doesn’t normally cover the financial releases of hardware companies but this one is special: SGI announced financial results on August 31 for its first full year under Rackable’s ownership. (If you recall, Rackable bought SGI and promptly changed the name of the whole company back to SGI.)

How did it go? Mezza mezza is how my Italian friends would put it: so-so. On the plus side,
• SGI met its goal of non-GAAP revenue of $500 million (reported non‐GAAP revenue of $525 million, GAAP revenue of $404 million)
• SGI also met the goal of non-GAAP gross margins in the mid-to-high 20% range (reported non‐GAAP gross margin of 27%, GAAP gross margin of 22%)
• the company says it has completed the integration of SGI and Rackable, and “established a solid foundation for the business”.
• generated $8 million in cash from operations; and
• the company remains debt-free.

But the down side is not insubstantial as the company reported a net loss of $88.5 million for the year on a GAAP basis; $25 million non-GAAP.

During the earnings conference call, CEO Mark Barrenechea said that SGI is “winning within process and discrete manufacturers as they introduce new products or improve existing ones” at companies such as Skoda, Audi, Sikorsky, and Boeing. Mr. Barrenechea reiterated SGI’s longstanding commitment to innovation: “At the core is our focus on technical computing, best-of-breed integrated compute, storage and networking, and approach to open systems and software and agility. In FY ’10, we stayed focused and delivered according to our compute and storage roadmap and strategy… Our cloud-inspired products have all been refreshed with the latest Intel and AMD technologies and optimized to offer the maximum performance per dollar, per watt, per square foot.”

For fiscal 2011, the company has offered the following guidance: non-GAAP revenue between $550 million and $575 million, gross margins between 27% and 30%, operating expenses between $165 million to $171 million, and EPS break-even.

It would appear that SGI survived a rough economy, integrated a sizable merger and another acquisition, produced new products and entered new accounts in fiscal 2010 — not bad. It has targeted 12% non-GAAP revenue growth for FY2011. Doable? Investors seem to think so, and I certainly hope so.