Why Silicon Graphics, With Minimal Downside, May Be Looking Up

The battered stock has been inching up on earnings hopes and buyout rumors.
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Silicon Graphics


is the technology company investors love to hate: too many disappointments, too little strategy, too many risks. Now, however, it's time for savvy bottom-fishers to look again, if for no other reason than because SGI's investments represent the lion's share of the overall value of the company.

Don't look to Wall Street for the nod on SGI, however. Of the 14 analysts tracked by


, 12 have a hold rating on SGI and two have moderate buys. None rates the company a strong buy. That's even as some of those same analysts report what appears to be a recovery in SGI's main businesses, powerful computer workstations and servers.

"It does look as if the company has been having a slightly better-than-expected quarter," says Laura Conigliaro, hardware analyst with

Goldman Sachs

in New York, who thinks there's a chance Silicon Graphics could break even in the quarter. "That gives them at least some sense of feeling more stable under circumstances that have been anything but." (Conigliaro has a neutral rating on SGI; Goldman has performed investment banking services for the company.)

One well-connected source who is long the stock thinks SGI easily will beat the expectations of analysts who think the Mountain View, Calif., company will lose about $7.6 million, or 4 cents a share, in its just-ended fiscal fourth quarter. The company is scheduled to report earnings on July 21.

SGI is one of Silicon Valley's stars-turned-walking-wounded. Founded by James Clark in 1981 before he went on to start





, SGI's lightning-fast computers catered to the graphic arts community and to Hollywood special-effects artists. But the company lost steam when plain-vanilla computers based on


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technology cut into its edge. The stock price retreated steadily from a high in the mid-40s in late 1995 to less than 8 at the depth of last year's tech trough.

Now CEO Richard Belluzzo, a former



executive, has been stanching the losses. Lately, constant rumors that SGI is a takeover target for the likes of


(DELL) - Get Report

or H-P, as well as hopes of a better-than-expected quarter, have revived the stock. It has been inching up this week from around 14 1/2 to Thursday's close of 17 1/16.

A spokeswoman for Silicon Graphics (still the company's legal name, despite the marketing campaign to call it simply "SGI") supplied the customary "no comment" on rumors and speculation. Further, company executives weren't available to discuss performance in the pre-earnings-release quiet period.

The upside of owning SGI may be questionable, but the downside clearly is minimal. That's because although SGI's overall market capitalization is $3.2 billion, its investment in spinoff

MIPS Technologies


alone is worth $1.4 billion. Add in the $750 million in cash and short-term investments SGI holds ($200 million from the sale of MIPS shares in May plus $550 million at the end of March), and the rest of SGI is worth just $1 billion. Considering the company's annualized sales are $2.7 billion, this company isn't even trading for one times sales when you back out the MIPS stake.

"They'll never get back to where they once where," says Steve Milunovich, an analyst with

Merrill Lynch

, who rates SGI an accumulate. "But I don't think there's a lot of downside."

Wal-Mart, the Banker

Sometimes today's latest "news" isn't new at all. Take


(WMT) - Get Report

recent step to inch into the banking business by offering check-cashing and other services in its stores. "Wal-Mart is the latest of several retailers to aspire to offer financial services," wrote

The Wall Street Journal

on Wednesday. "Retailers see such banking services as a way of providing one-stop shopping to customers, who can take care of almost any need at their stores."

This shocking new trend sounds an awful lot like the failed effort by


(S) - Get Report

to sell everything from "socks to stocks" during the 1980s.

Didn't work then. Won't work now.

But have a nice day.

Adam Lashinsky's column appears Mondays, Wednesdays and Fridays. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Lashinsky writes a monthly column for Fortune called the Wired Investor, and is a frequent commentator on public radio's Marketplace program. He welcomes your feedback at