Comments on: Silicon Graphics International (SGI) Analysis

By: Ken

Ken — Mon, 22 Mar 2010 12:20:33 +0000

To revise my previous comment. I read Randy’s comment a little too fast and thought he was referring to the entire client PC platform being hosted in the cloud which I think is still unclear. But it does look like more and more software moves from the end device to the Internet. Yes applications are trending towards the hosted model (salesforce.com, google docs, MSFT’s competitor to docs, etc…).
.-= Ken´s last blog ..Festival of Stocks #178 February 1st 2010 =-.

By: Ken

Ken — Mon, 22 Mar 2010 07:35:13 +0000

Agree with what Randy said for the most part. However I think cloud “commuting” is still a ways off and I think its too early to say how end user’s platforms will evolve. But it is clear service providers are all starting to offer some form of cloud based hosting. Look at how many web hosts there are now, that is cloud computing in the future. Companies like Amazon, Rackspace, Verizon, etc… All offering cloud or utility computing solutions will be buying hardware from someone. SGI/Rackable is in a good space to sell it to them. But keep in mind there are big competitors here (HP, etc…).

Also in response to Jae’s question. There is also a need for “private clouds” that companies can host internally. Some companies are reluctant to host their customer data and IP in the cloud because of the multi-tenancy nature of the proudct and the security implications. However they do like the ease of provisioning that the cloud model provides. Allowing developers/QA, sysadmins etc… to deploy virtual servers with the click of a button saves a ton of time. So big companies will be building out their own internal cloud infrastructure. But really this just equates to more server purchases with new software on top of it.
.-= Ken´s last blog ..Festival of Stocks #178 February 1st 2010 =-.

By: Weekly Links: March 21, 2010 | Dividends Value

Weekly Links: March 21, 2010 | Dividends Value — Sun, 21 Mar 2010 11:32:59 +0000

[...] Old School Value presented Silicon Graphics International (SGI) Analysis [...]

By: Randy Durig

Randy Durig — Sun, 21 Mar 2010 00:48:45 +0000

Great question Jae,

I use my laptop, work, and home computers, not to mention any mobile devise, to communicate both professionally and personally.

I want only one pull down for say my e-mails(from the clouds) no matter the underling platform or computer. You and I have shared, a Google doc, that is a cloud application.

So in the future you, say you buy a music video, you will want the sound and entertainment provided on any platform you own, rent, or visit, and updated to all platforms with any keystroke. Not just on a single PC. So the app’s/music can follow you (like a cloud)even if you go to say, wine county:)

So since RAX provides music, and other cloud services, it will need a high level of hardware and storage to support it’s tremendously large level of app,s (like music selections)to possibly just as many platforms.

So I beleive cloud commuting like RAX and SGI is the future, and SGI has a good position/business model, supporting companies like RAX.

I know this valuation is Apples to Grapes and is wrong, but I also beleive you protect your clients by finding companies with very low valuation.

So since RAX is value about 4 sales and SGI is about .5 sales. Based on that single simple model, SGI could have about 8x stock increase to equal RAX current price to sales value.

Hopefully, you can understand why SGI make’s a very compelling investment for my client’s.

Thanks again

Randy

http://investment-income.net/category/investments/high-cash-stock-review

By: Jae Jun

Jae Jun — Sat, 20 Mar 2010 08:19:20 +0000

I see. I’m not too familiar with networking and IT equipment, but why would companies buy cloud computing hardware when the purpose is to reduce expenses and maintenance cost through cloud computing?? Unless you mean, SGI sells to companies like RAX who then provide cloud computing to the end users.

By: Randy Durig

Randy Durig — Thu, 18 Mar 2010 15:49:43 +0000

Hi Jae,

Thanks for posting the article, your first question, “what margin of safety would you use?”

We try to protect our clients by providing a margin of safety, by trying to model in extremely low values, like rev’s, or a good example is some of your article’s on negative enterprise values, to us this is our protection.

I’m still building a positions in SGI, but at a much slower pace, I was (pleasantly) caught off guard how much it moved and how fast.

Do you also use other valuation methods? Three main tenets in our selection criteria.

1) Value, negative enterprise is good for example.
2) Business model, the more monopolistic the better, for investments.
3) Management execution, This is also protection, SGI is executing at a very high level.

RAX could be a client.

Again Thanks

Randy Durig
http://investment-income.net/category/investments/high-cash-stock-review

By: Ken

Ken — Tue, 16 Mar 2010 17:34:05 +0000

RAX could be considered a competitor in one of their spaces. RAX and SGI both provide a cloud computing offering. However RAX does not sell hardware. SGI does. Specifically SGI sells super computer hardware and with the purchase of Rackable they now offer high density computing hardware. It appears as though SGI’s cloud service is aimed at technical or scientific customers that specifically are looking for high compute power. Where as RAX is a general hosting provider and their cloud offering is more aimed at companies that want to move their IT infrastructure to the cloud.

Rackable was a provider of high density hardware solutions to google at one point in time (not sure if they still are). But for example SGI after buy rackable would be in a good space to sell hardware to cloud providers where as RAX does not do that.
.-= Ken´s last blog ..Festival of Stocks #178 February 1st 2010 =-.

By: mark feldman

mark feldman — Tue, 16 Mar 2010 13:19:21 +0000

kind of hard to buy over 20% higher than your purchase price. Was there a reason to wait so long before posting?

By: Jae Jun

Jae Jun — Tue, 16 Mar 2010 06:31:42 +0000

And would RAX be considered a competitor?

By: Jae Jun

Jae Jun — Tue, 16 Mar 2010 06:30:34 +0000

Randy thanks for letting me put this up.
I have a question about the valuation. Given your multiples provide a value in excess of $17, what margin of safety would you use? You bought at $8.89 and probably bought around Jan but what would you consider to be a good entry point now?

Do you also use other valuation methods?