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Long-Term Report
February 18, 2003
Silicon Graphics (NYSE) SGI $ 1.28
52-week range $0.56-$4.85
Market Cap $226.3M
Shares Outstanding 198.5M
Book Value -$0.53
Price/Book N/A
Average Daily Vol. 884,000
Target Price $5.00
Target Percentage 290%
Silicon Graphics is a leading provider of high-performance solutions for complex data management, video and visualization applications. The company’s products deliver advanced 3-D graphics and computing capabilities for engineering and creative professionals.
We are recommending Silicon Graphics for the following reasons:
  • The Company has completed a turnaround of its business over the past 18 months under the new management. This is especially true with regard to Silicon’s product offerings and its research and development.
  • On 2/18/03 the company announced it received a contract for $26 million from the U.S. Department of Defense. Additional revenue is expected from the contract over the next several years.
  • From a financial viewpoint, the company’s position has strengthened considerably whereby Standard & Poor’s recently upgraded the company’s bond rating.
  • The Company’s video and visualization products have gained increasing acceptance outside the scientific community. A major customer over the recent past has been the motion picture industry. The need for high-resolution graphics has dramatically increased as the industry employs more “special effects” and the medium is moving towards digitalization.
  • While corporate IT spending has been slow, the company’s Government business has been robust. This sector represents 30%-40% of Silicon Graphic’s business. SGI has recently received orders from the U.S. Government for its Early Warning System.
  • New orders have been secured from India, Malaysia, and Sweden, and new domestic orders have been received from Ford Motor Company, Lockheed Martin, John Deere, and the National Cancer Institute.
  • Currently, the company has gross revenues of $1.3 billion and we estimate earnings of 12 cents per share for the fiscal year ending 6/30/03. SGI has cash of $1.09 per share.
UPDATE: King Pharmaceutical (KG) announced its most recent financial results on 2/18/03. The company reported quarterly earnings of $0.41 per share on an operating basis, exceeding the consensus estimated by $0.02 per share. The company did take a one-time charge but we continue to like the stock at $15 and believe our target price of $21 will be achieved.



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