Silicon Graphics outlook positive, says S&P

Our Economy Bureau
30 May 2002
New York: Standard & Poors (S&P) has revised its outlook on Silicon Graphics Inc (SGI) to positive from negative, reflecting SGIs recent progress in stabilising its operations.

At the same time, S&P affirmed its triple-C-minus corporate credit rating on the California-based Mountain View.

Although SGI has a strong technology position in high-end computing and graphics solutions, the company has been struggling to restore revenue growth and profitability in the highly competitive technical workstation and server markets, says S&P analyst Martha Toll-Reed.

In addition, economic weakness and reduced levels of information technology spending will continue to pressure the companys efforts to stabilise revenues.

Despite a difficult market environment, SGI has demonstrated significant operational progress. The company reported EBITDA of $48.6 million for the nine months ended March 2002, compared with an EBITDA loss of $143 million in the previous year period. In addition, the company generated positive cash flow from operations in the March 2002 quarter, and halted the erosion in its cash balances.

Near-term liquidity is adequate. Unrestricted cash balances were $167 million as of March 2002, up from $116 million at the end of the December 2001 quarter. The company has limited availability under its $75-million credit facility expiring in April 2003, and S&P has concerns about the companys ability to access capital to refinance significant debt maturity in September 2004.

Sustainable improvements in operating income and cash flow could lead to ratings improvement in the near to intermediate term.