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Why Silicon Graphics International (SGI) Plummeted on Tuesday

NEW YORK (TheStreet) -- Silicon Graphics International (SGI - Get Report) suffered double-digit losses in Tuesday's session following lowered second-quarter guidance. By early afternoon, shares had taken off 12.9% to $12.10.

The high-performance computing developer warned it expects second-quarter revenue for the period ended Dec. 27 of $116 million, 32% lower than the year-ago quarter. A net loss of between 21 cents and 24 cents a share is anticipated.

Analysts surveyed by Thomson Reuters had expected a net loss of 14 cents a share on $125.25 million in revenue.

The company said it experienced a blow to revenue over October, a result of the government shutdown. Federal revenue was $44 million, down from $76 million in the first quarter, and 32% lower than the year-ago period.

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"As expected, our results in the fiscal second quarter were impacted by the government shutdown and its after-effects. Outside of our Federal business, in the second quarter we grew core revenue 14% sequentially, reflecting initial traction from our strategic focus on providing integrated HPC and Big Data solutions across key vertical markets," said CEO Jorge Titinger in a statement.

The Milpitas, Calif.-based business is due to release second-quarter results on Jan. 29. For the second half of fiscal 2014, management expects revenue in the range of $260 million to $300 million, compared to analyst consensus of $341.75 million.

Last week, Silicon Graphics rallied after competitor Cray (CRAY - Get Report) reiterated its 2013 sales guidance. On Silicon Graphics' lowered estimates, Cray has tumbled 1.4% to $30.09.

TheStreet Ratings team rates CRAY INC as a Hold with a ratings score of C+. The team has this to say about their recommendation:

"We rate CRAY INC (CRAY) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • CRAY's very impressive revenue growth greatly exceeded the industry average of 2.8%. Since the same quarter one year prior, revenues leaped by 52.1%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • CRAY has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.34, which illustrates the ability to avoid short-term cash problems.
  • 43.88% is the gross profit margin for CRAY INC which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, CRAY's net profit margin of -20.27% significantly underperformed when compared to the industry average.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Computers & Peripherals industry and the overall market, CRAY INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly decreased to -$108.49 million or 277.72% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

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