U.S. shutdown hurts Silicon Graphics first quarter; shares fall


Silicon Graphics International Corp , a supplier of servers based on the Linux operating system, estimated first-quarter results below expectations, citing uncertainty related to the completion of IT projects funded by the U.S. government.

Silicon Graphics shares fell about 15 percent in extended trading.

Continue Reading Below

The company, which counts Facebook Inc , AOL Inc and Yahoo Inc among its customers, expects first-quarter adjusted earnings of 2-4 cents per share, on revenue of $147 million.

Analysts on average had expected earnings of 9 cents per share on revenue of $164.7 million, according to Thomson Reuters I/B/E/S.

Silicon Graphics, which generated about half of its first-quarter revenue from the U.S. government, said it was affected by the "halt in all transaction activity that occurred in late September due to the looming government shutdown".

In a conference call with analysts, Chief Executive Jorge Titinger said Silicon Graphics was unable to communicate with most of its federal customers to assess whether current deals would be delayed.

The shutdown was triggered on October 1 after Congress failed to reach an agreement on funding for the new fiscal year due to a standoff over healthcare reforms.

Silicon Graphics provides computer servers to large-scale data centers. Its products are used to quickly access, analyze and store large amounts of data.

For the full-year, the company said it expects the government shutdown and possible spillover effects could reduce revenue by about 10 percent from its forecast of about $760 million.

The effects of the shutdown combined with Silicon Graphics' plan to move away from its low-margin legacy cloud business, which includes low-end servers, could be hurting results for the full year, FBN Securities analyst Shebly Seyrafi said.

Silicon Graphics expects its legacy cloud business to decline to $14 million in the first quarter ended September 27, from $45 million in the fourth quarter.

(Reporting by Neha Alawadhi in Bangalore; Editing by Supantha Mukherjee)