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Wall Street shines on SGI's results

The workstation maker's stock is up in early trading, after it beat earnings expectations yesterday.

Wall Street reacted favorably today to Silicon Graphics' less-than-expected loss, sending stock up to 17.75 in early trading today, more than 15 percent above its closing price yesterday of 15.

Silicon Graphics beat Wall Street expectations yesterday, posting an operating loss of 14 cents per share for the second quarter of fiscal 1999.

Analysts expected the Mountain View, California-based firm to post a loss of 19 cents per share, according to a consensus of estimates compiled by First Call.

The company has been in the midst of several important changes, including the addition of workstations using Windows NT operating system and Intel chips.

SGI has "a long recovery ahead of it," said Goldman Sachs analyst Laura Conigliaro. "They have come quite a distance already, but they still have quite a distance to go."

Up to now, the company's restructuring has been focused on changes to internal aspects such as operations and finance, she said. Goldman Sachs had expected the company to report a loss of 18 cents per share for the quarter.

"I think this quarter has been a good milestone for us. This turnaround process is about halfway through," said Bill Kelly, senior vice president of SGI's corporate operations.

"Of course, we're not satisfied in losing money in the quarter," Kelly added, saying the company does expect its next two quarters to be profitable overall.

The company's next product announcement will address the server side of its business, he said. The company's business is currently split down the middle between workstations and servers.

Asked if SGI is looking into selling servers, in addition to workstations based on Intel's current generation of 32-bit chips, Kelly said, "It's one of the things we're looking at, but we're not ready to make any announcements. We're not ruling that out."

Meanwhile, the company will release computers taking advantage of two or three generations of new MIPS chips, Kelly said. SGI will sell MIPS- and Intel-based servers concurrently.

Fitting SGI's proprietary hardware into Wintel machines will be tough, said Philip Rueppel, who monitors SGI for BT Alex. Brown.

"The NT space is very new to SGI, and it's a very difficult market to compete in. It's hard to differentiate, and it's not even clear that customers want anybody to," Rueppel said. "The idea of the PC space is that you can get memory from any vendor and stick it in the slot and it works," he said, referring to the fact that the Visual Workstations require a special new configuration of memory modules.

SGI has seen a "very strong response" for the new workstations, Kelly said, and has an order backlog of several thousand units from users and resellers who want the machines. The lower-end Visual Workstation 320, which can handle as many as two Pentium II chips, will begin shipping in February, with the higher-end 540 to ship in April, he added.

SGI sees a "long-term decline in the Unix workstation" market, but the company will continue to support its Unix customers, Kelly said. "We don't want to force them to make the transition" to Wintel systems, he added.

SGI also has added the ability to buy the workstations over the Web, a first for the company. In the long term, on-line sales will be "very significant," he said.