Why Silicon Graphics Shares Sank

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Silicon Graphics International (NASDAQ: SGI  ) have plummeted as much as 16% lower today after the company released an earnings report that showed uncertain -- and possibly weakening -- conditions ahead.

So what: Silicon Graphics' fiscal first quarter revenue fell 24% year-over-year to $147.5 million, essentially in line with the $147 million consensus, but its adjusted earnings of $0.04 did best the consensus of $0.02 in EPS. However, there were several distressing aspects of Silicon Graphics' report that outweighed this beat. The company's GAAP net loss was $0.20 per share, a full 54% decline from the same period a year ago, and "current budget uncertainty in the Federal government" forced Silicon Graphics to suspend its guidance for the near term.

Now what: S&P analyst Shebly Seyrafi downgraded the stock to a hold as a result of this uncertainty, and it's hard to see anything positive in the situation -- plenty of other contractors face the same issue, yet continue to release guidance nonetheless. Silicon Graphics CFO Robert Nikl has said that he expects "solid sequential growth and profitability" in the third quarter and beyond, but that still leaves investors with another uncertain quarter in which the company anticipates a cash burn. That doesn't particularly inspire confidence, and there are certainly plenty of other stocks that offer a clearer picture of the future. I'd hold off.

Want more news and updates? Add Silicon Graphics to your watchlist now.

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