SGI blows by expectations

My morning news troll turned up the fact that shares of SGI, maker of servers and data storage hardware, are up nearly 20% in pre-opening trading. Why? Because SGI reported results yesterday that are making traders giddy: SGI believes it is benefitting from an upswing in momentum in business spending, leading to an 89% increase in revenue for the second quarter of fiscal 2011 to $177.5 million and net income of $3.7 million, compared to a loss of $23.0 million in the same period the previous year.

Even better: SGI’s updated forecast for fiscal 2011 now calls for revenue between $570 million and $595 million and for profitable earnings per share, excluding one-time item charges. Prior guidance was for revenue of $550 million to $575 million and $0.00 earnings per share.

Said CEO Mark J. Barrenechea, "SGI delivered the best quarter in its history. These record results underscore the success of our product strategy and execution, focus on operational excellence and commitment towards profitability.“

Why should the PLM universe be interested in SGI’s results? During the earnings call for FQ1, Mr, Barrenechea described how SGI helps power the Amazon cloud that so many of the PLM vendors are using or contemplating for their cloud offerings. At the time, Mr. Barrenechea said that Amazon accounted for more than 10% of revenue in FQ1. Too, SGI hardware has long been used in HPC environments for CAE and advanced visualization — its results are an important barometer of how its end-markets view their opportunities. Will there be increased computing in biomedical? Is Hollywood working on another digital masterpiece? How many shoppers will go to Amazon on Black Friday?

SGI’s business is seasonal, as its customers try to ramp up their capacity ahead of anticipated demand. Clearly, a lot of customers believe that their customers are going to be increasing computation and storage — very good news for software companies.