The Cutting Edge: COMPUTING / TECHNOLOGY / INNOVATION : Computer Firm Expects Disappointing Earnings
SAN FRANCISCO — Silicon Graphics Inc. stock dropped nearly 16% on Tuesday after the computer company said it expected second-quarter results to be lower than last year’s and well below Wall Street’s estimates.
Shares in the Mountain View, Calif.-based company tumbled $4.375 to close at $23.25 on the New York Stock Exchange after its opening was delayed for more than an hour because of the news. It was the second-most-actively traded issue on the NYSE, with about 11 million shares changing hands.
The company, which produces three-dimensional computer graphics and supercomputing technology for technical and scientific users, said that, based on a preliminary review of the quarter ended Dec. 31, it expects its earnings to slip to about 30 cents a share from 34 cents a year ago, when it posted a net income of $54 million.
A survey of financial analysts by the Wall Street information provider First Call, made before the announcement, estimated that the company’s earnings for the quarter at 42 cents a share.
The company attributed the results to lower-than-expected revenue growth in North America and Europe, although it said it expects its second-quarter revenue to expand to about $675 million from $550 million.
“Our revenue growth rate in North America and Europe did not meet our expectations,” Chairman Edward McCracken said in a statement.
“They had been growing so strong, and then they get to the real world and find they are not growing as fast as hoped,” analyst George Elling of Merrill Lynch said.
“They looked internally to grow a lot faster and built a cost structure expecting 44% revenue growth.”
Analysts said the weakness could extend beyond the current quarter to the rest of the year.
“I would have to say that it’s not only a glitch for the quarter, but for the year as well,” said David Wu at Chicago Corp. Wu added that he expects revenue to grow at about 30% for the year, compared with the original company forecast of about 45%.
“They were gearing up for growth,” Wu said. “They were too aggressive in their expectations and hired a lot of people. It hasn’t come as fast as they hoped.”
Laura Conigliaro at Prudential Securities noted that the company also has been integrating an enlarged sales force and that many of those people were not yet productive.
McCracken said contributing factors in North America included a slowdown in sales to the U.S. government caused in part by budget uncertainties. European results were affected by slowdowns in the major economies of Germany, France and Britain, the company said.
Analysts estimated Silicon Graphics derives 7% to 8% of its total revenue from U.S. government contracts and about 7% from Germany.
