The Trusted Leader in High Performance Computing


SGI Reports Financial Results For Second Quarter of Fiscal 2012

FREMONT, Calif., February 7, 2012 - SGI (NASDAQ:SGI), the trusted leader in technical computing, today announced financial results for its second quarter of fiscal 2012.

Financial Summary for Q2 FY12

  • Revenue was $195.2 million, up 10% Y/Y
  • Gross margin was 26.7%, down 275 bps Y/Y
  • EPS was ($0.07) compared to $0.12 Y/Y; Non-GAAP EPS was $0.04 compared to $0.44 Y/Y
  • Updating FY2012 guidance to reflect expected higher revenue, lower margins and lower EPS

"Our products are in high demand and we are taking share in the market. At the same time we faced some challenges in Q2 impacting our margins," said SGI's interim CEO, Ron Verdoorn. "Our overall gross margin was adversely affected by challenging economic conditions in Europe and the high cost of doing business there. We are taking decisive action to align our business for sustainable profitable growth and are planning to restructure our European operation. Other contributing factors to the decline in margin, the transition of our service margin profile and the change in product mix are temporary.

"Our strategy is solid, and we continue to focus on delivering innovative, differentiated products with the speed and scale required in the High Performance Computing, Big Data and the Cloud spaces. We added approximately 100 new customers in the quarter and our business continues to benefit from robust demand."

Business Highlights for Q2 FY12 including recent events

  • Customer successes in the second fiscal quarter include Hungarian National Information Infrastructure Development Institute, Institute for Chemical Research at Kyoto University, NASA's selection of SGI's ICE HPC platform for the next Pleiades supercomputer upgrade, Universit√© de Sherbrooke (the fastest HPC system in Canada), Poznan Supercomputing Center (Poland), WOWOW (Japan), and iVEC (Australia)
  • Strong revenue contribution from our international business, representing 48% of total revenue
  • Introduced next-generation ICE X HPC platform
  • Achieved a world record Hadoop benchmark
  • Announced world's first power-optimized Hadoop Cluster reference implementation
  • Achieved the largest certified configuration for Red Hat Enterprise Linux 6

Our channel business contributed 17% and direct was 83% of revenue. Domestic business was 52%, while international contributed 48%. Products were 73% of revenue and services contributed 27%.

Summary of Results

SGI ended Q2 FY12 with $95.1 million in cash (including cash equivalents and restricted cash), down from $115.5 million last quarter.

Updated Fiscal Year 2012 Guidance

SGI is updating its previously released guidance for fiscal 2012.

Conference Call Information

In conjunction with this earnings press release, SGI has posted an earnings presentation which incorporates commentary from James Wheat, SGI's CFO, to the Investor Relations section of its website at

The public is invited to listen to the earnings conference call at 2:00 p.m. PT (5:00 p.m. ET) by dialing (888) 463-5422 (toll-free) or (970) 315-0484 (international). Please dial-in 15 minutes ahead of time to ensure proper connection. Alternatively, a live webcast of the earnings conference call will be available on the Investor Relations section of our website at

A replay of the webcast will be available approximately two hours after the conclusion of the call and will remain available until the next earnings call. An audio replay of the conference call will also be made available approximately two hours after the conclusion of the call. The audio replay will remain available for five days and can be accessed by dialing (855) 859-2056 (toll-free) or (404) 537-3406 (international) and entering the confirmation code: 41860582.

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Cautionary Statement Regarding Forward Looking Statements

This press release contains forward-looking statements, including statements regarding SGI's guidance for fiscal 2012 financial performance, general business outlook and anticipated product performance and offerings. Any statements contained herein that are not statements of historical fact may be deemed forward-looking statements. Actual results may differ materially from forward-looking statements due to a number of risks and uncertainties including those associated with: SGI's international operations; changes in demand for SGI products; economic conditions impacting the purchasing decisions of SGI's customers; the very competitive market in which SGI operates that may cause pricing pressure on SGI's solutions, negatively affecting SGI's gross and operating margins; customer concentration risks; SGI's increased reliance on sales to U.S. government entities which is subject to the government's budgetary constraints; SGI's inability to control the supply, timing of delivery and pricing of essential product components; and significant excess or obsolete inventory that SGI may be required to write off in the future. Detailed information about these and other potential factors that could affect SGI's business, financial condition and results of operations is included in SGI's Annual Report on Form 10-K under the caption "Risk Factors," in Part I, Item 1A of that report, filed with the Securities and Exchange Commission ("SEC") on August 29, 2011, as updated by SGI's subsequent filings with the SEC, all of which are available at the SEC's web site at You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this announcement. SGI undertakes no responsibility to update the information in this announcement, except as may be required by law.

Use of Non-GAAP Financial Measures

The non-GAAP financial measures discussed in the text of this press release and accompanying non-GAAP supplemental information are financial measures used by SGI's management to evaluate our operating performance and to conduct its business operations. These non-GAAP measures are not in accordance with, or an alternative for, U.S. generally accepted accounting principles ("GAAP") and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles and management exercises judgment in determining which items should be excluded in the calculation of non-GAAP measures. While we believe that non-GAAP measures have limitations in that they do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP, we believe that non-GAAP measures are valuable in analyzing our operations. Management analyzes current and future results on a GAAP basis as well as a non-GAAP basis and also provides GAAP and non-GAAP measures in our earnings release. The presentation of non-GAAP financial information is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. The non-GAAP financial measures are meant to supplement, and be viewed in conjunction with, GAAP financial measures. We believe that the presentation of non-GAAP measures, when shown in conjunction with the corresponding GAAP measures, provides useful information to investors and management regarding financial and business trends relating to our financial condition and results of operations. Pursuant to the requirements of SEC Regulation G, a detailed reconciliation between our GAAP and non-GAAP financial results is provided at the end of this press release. Investors are advised to carefully review and consider this information as well as the GAAP financial results that are disclosed in SGI's SEC filings.

In evaluating our performance, management uses one or more of the non-GAAP following measures: non-GAAP net income and non-GAAP basic and diluted net income per share. These measures are adjusted as described in the reconciliation of GAAP and non-GAAP numbers at the end of this release, but these adjustments should not be construed as an inference that all of these adjustments or costs are unusual, infrequent or non-recurring.

We use these non-GAAP financial measures in making operating decisions because we believe the measures provide meaningful supplemental information regarding our operational performance and give us a better understanding of how we should invest in research and development and fund infrastructure and product and market strategies. We use these measures to help us make budgeting decisions, for example, among product development expenses and research and development, sales and marketing and general and administrative expenses. In addition, these non-GAAP financial measures facilitate our internal comparisons to our historical operating results, forecasted targets and comparisons to competitors' operating results.

Contact Information:

Ben Liao
SGI Investor Relations

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