Here's Why Silicon Graphics International Corp. Shares Got Wrecked

Is this meaningful or just another movement?

May 1, 2014 at 2:08PM

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 Corp. (NASDAQ:SGI) have lost nearly 16% of their value today as investors react with typical fear toward last night's release of Silicon Graphics' disappointing fiscal third-quarter earnings.

So what: Silicon Graphics had been expected to report revenue of $129.8 million, with a loss of $0.18 per share. However, the company fell on its face with an abysmal 47% year-over-year drop in revenue to $124.3 million, which produced a worse-than-expected $0.22 loss per share. The company now expects fourth-quarter revenue to range from $135 million to $145 million and expects to lose between $0.15 and $0.18 per share. Both of these ranges were worse than Wall Street's consensus estimate of $149.8 million in revenue and $0.05 in losses per share.

Now what: This is pretty ugly. Silicon Graphics had been pushing close to breakeven, and while its trailing-12-month revenue had wobbled a bit in recent quarters, it hadn't quite fallen apart. The company will now make somewhere in the range of $528 million in revenue for its 2014 fiscal year, which comes in nearly a third lower than 2013's result and which is also the weakest annual revenue Silicon Graphics has recorded since 2010. This company only managed to record a profit briefly prior to the financial crisis and has not climbed out of that hole again. There's little here to recommend Silicon Graphics to any investor, so I'd simply keep my distance.

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