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SCI stock plunges on earnings warning

The computer company's stock plummets after it warns that financial numbers would fall short of expectations.

Stephen Shankland Former Principal Writer
Stephen Shankland worked at CNET from 1998 to 2024 and wrote about processors, digital photography, AI, quantum computing, computer science, materials science, supercomputers, drones, browsers, 3D printing, USB, and new computing technology in general. He has a soft spot in his heart for standards groups and I/O interfaces. His first big scoop was about radioactive cat poop.
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Stephen Shankland
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SCI Systems, a company that until recently was the largest builder of computer systems for other companies, saw its stock price plummet today after it warned that financial numbers would fall short of expectations for the next two quarters.

The Huntsville, Alabama, company is cutting jobs at several of its manufacturing plants "in the interest of efficiency enhancement," but revenue and earnings won't meet projections for the two coming quarters, SCI said in a statement yesterday. The company attributed the problems to decreasing market share and increasingly competitive pricing.

The company's stock opened today at 33.25, a 23 percent drop from yesterday's close at 42.9375. In midday trading today, shares leveled off at about 35.

Merrill Lynch, SG Cowen, and Robinson-Humphrey all downgraded SCI today. However, Paul Fox of NationsBanc Montgomery Securities said he believes that today's market reaction "is overdone. I think they still have excellent prospects for growth."

SCI reported its second-quarter results yesterday for the three months ending December 27, 1998. The company reported net income of $32.4 million, or 48 cents per diluted share, compared to net income of $37.6 million, or 55 cents per diluted share, for the same quarter the year before.

Although the next quarter's results won't live up to earlier expectations, SCI said it still probably will beat the results from the year before.

Fox noted that SCI ceded place to Solectron in the contract manufacturing business. With contract manufacturing, computer vendors and other electronics companies pay manufacturers to build circuit boards, computer systems, or other components.

SCI's major customers for building computers include Hewlett-Packard, Dell Computer, and Compaq Computer, Fox said.

Last month, Silicon Graphics announced that SCI would build its new Intel-based Visual Workstation machines.