SGI sees another quarterly letdown, plans share buyback

SGI (NYSE: SGI) sees far greater losses than analysts expected in the first quarter, hopes to raise as much as $450 million cash by selling assets and plans to buyback up to 50 million shares.

After market close Monday, the workstation vendor said it expects to report a first quarter loss of about $55 million, or 28 to 30 cents per share, including a $50 million gain from an asset sale and other income. First Call's survey of seven analysts predicted a loss of 14 cents per share for the quarter ended Sept. 30.

Also Monday, SGI said it plans to repurchase up to 50 million shares through December 2002, and instill a new operating model.

First quarter reported revenue will be about $420 million, lower than the $500 million expected, SGI said. The company blamed the revenue disappointment on a materials shortage, mainly wafer starts and ceramic packaging for ASICs. SGI expects a first quarter backlog of about $370 million, or $70 million higher than the end of June, and about $120 million more than the company wants.

Monday's announcement marks the third straight quarterly letdown for SGI, which missed analyst estimates in the fourth quarter and third quarter.

SGI expects a second quarter operating loss of about $35 million on revenue of $500 million to $530 million, and full fiscal 2001 revenue of $2.2 billion. The second half of fiscal 2001 should see revenue grow more than 20 percent if parts shortages are resolved, SGI said.

Executive Vice President and CFO Hal Covert, who joined SGI in July from Red Hat (Nasdaq: RHAT) and previously worked at Adobe Systems (Nasdaq: ADBE), will oversee an overhaul of the business, the company said. Getting to a new SGI model includes the sale of some assets to raise $400 million to $450 million in cash, with a gain of $200 million to $250 million, the company said.

Also planned are a new enterprise resource planning system. All told, operating changes should save $100 million in annual costs, Covert said, during an afternoon conference call with analysts.

The company sees operating income ranging between $55 million and $65 million in the second half of 2001, Covert said.

SGI can outgrow the overall market for the next several years, Covert told analysts.>