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S&P rates Data General, SGI

Silicon Graphics and Data General get a boost from a series of credit and debt ratings issued by Standard & Poor's.

Debt ratings agency Standard & Poor's today placed Data General (DGN) on its CreditWatch with positive implications, and gave Silicon Graphics (SGI) a stable outlook forecast and issued a "BBB-" rating for its debt offering.

S&P issues credit and debt ratings on companies, giving investors an indication of the likelihood they will receive payment should they buy an organization's debt offerings.

Data General, one of the first minicomputer makers that has struggled to remake itself, was placed on S&P's CreditWatch with a corporate credit rating of "B+" and received a "B-" rating for its subordinated debt.

S&P said the rating reflects the progress the company has made in restoring profitability and improving its financial flexibility.

"Data General has transitioned away from its higher-margined proprietary minicomputer business, and realigned its cost structure to compete more effectively in the growing, but lower-margined, industry standard workstation and server segments," S&P said in a statement.

S&P also cited Data General's recent decision to incorporate Intel's architecture in its new generation of servers as a way to enhance its ability to support a broader range of software applications. (Intel is an investor in CNET: The Computer Network)

Over the past five years Data General has posted a combined loss of more than $200 million, but its performance has improved of late. The company reported net profits of $39 million during the past nine months ending June 29 and it holds a cushion of cash and securities of about $335 million.

Meanwhile, Silicon Graphics received a "BBB-" rating on its $250 million senior convertible notes due in 2004.

S&P said the rating reflects the company's "strong financial profile and solidified leadership in the high-performance computer market, offset by highly competitive industry conditions and a relatively narrow market focus."

Silicon Graphics is expected to receive a boost in operating efficiencies from its 1996 acquisition of Cray Research. The improvements are expected to come from the consolidation of its product lines and facilities with Cray.

The rating agency said it expects SGI's operating margins to remain at 10 percent through 1997, and that the company has maintained a "conservative" balance sheet.

S&P gave the company a "stable" outlook forecast. But it noted: "The potential for rating improvement is limited by highly competitive market conditions. Although some downside protection is provided by Silicon Graphics' good market position and solid financial profile, failure to improve longer-term revenue growth could have a negative impact on the rating."

In its latest quarter, SGI blew past analysts' estimates when it reported its fourth-quarter results. The company reported net profits of $102.4 million, compared with a loss of $48.7 million a year ago.

And at the time, SGI's chief executive and chairman, Edward McCracken, attributed the quarterly performance to completing a product transition cycle and improving its manufacturing and forecasting process.

SGI had also reported revenues of $1.2 billion for the quarter, up 19 percent from $977.4 million a year ago.