SGI Acquires SGI Japan, Ltd.

FREMONT, Calif. and TOKYO, March 9, 2011 /PRNewswire/ -- SGI (Nasdaq: SGI), a trusted leader in technical computing, today announced it has acquired all outstanding shares of SGI Japan, Ltd. from a consortium of investors that includes NEC Corporation, Sony Corporation and Canon Marketing Japan.  The purchase price was $17.9M in an all cash deal.  The purchase also includes $27.0M of net working capital. SGI previously owned 10.4% of SGI Japan, Ltd.

This acquisition intends to serve as a strategic entry into the large technical computing market of Japan. SGI expects that the transaction will accelerate growth opportunities in this important market. SGI Japan, Ltd. operates primarily as a sales and service organization within Japan.

The acquisition, which closed on March 9, 2011 (Pacific Time), is expected to add more than 400 customers in important vertical markets including government, manufacturing, telecommunications, media and education. In addition, with this acquisition, SGI is expected to add 272 talented employees with unique technical computing skills and a proven track record in Japan's market.

"Japan is one of the world's largest and most important technical computing markets," said SGI CEO Mark J. Barrenechea. "Today's acquisition further extends our global reach as we seek high value ways to expand growth opportunities. We look forward to strengthening our relationships with employees, partners and customers of SGI Japan, Ltd."

"We expect this acquisition will be accretive to earnings in the current fiscal year and will help us achieve a revenue growth of 14% to 19% in FY11, and 15% to 20% in FY12, both on a non-GAAP basis," said Jim Wheat, SGI CFO.

Nobuhiko Nakatsu has been named President of SGI Japan. Mr. Nakatsu previously served as President and CEO of SGI Japan, Ltd.

Updated Guidance

Based on today's acquisition announcement, SGI is updating its previously announced non-GAAP guidance for Fiscal Year 2011.  

In addition, the Company is updating its Internal Plan for Fiscal Year 2012 to reflect today's announcement.

Conference Call Information

SGI will discuss today's news during a conference call at 2:00 p.m. PT today. The public is invited to a live web cast of the call which can be accessed by visiting the Investor Relations section of the Company's website at investors.sgi.com, or by dialing (888) 463-5422 or (970) 315-0484.  A Company presentation addressing the acquisition is also available at the same website location.  A replay of the web cast will be available approximately two hours after the conclusion of the call.

About SGI

SGI, a trusted leader in technical computing, is focused on helping customers solve their most demanding business and technology challenges. Visit www.sgi.com for more information.

About SGI Japan, Ltd.

SGI Japan, Ltd. was formed in 1987 as Nihon Silicon Graphics. The subsidiary is a sales and service organization within Japan's technical computing market. SGI Japan, Ltd. will now operate as a fully-owned subsidiary of SGI.

Cautionary Statement Regarding Forward Looking Statements

This press release contains forward-looking statements; including statements regarding SGI's guidance for 2011 financial performance, general business outlook, anticipated product performance and offerings and the benefits of the acquisition of SGI Japan, Ltd., including the potential global expansion and reach to new markets, the additional customers and employees and the future anticipated revenues of SGI Japan, Ltd. Any statements contained herein that are not statements of historical fact may be deemed forward-looking statements. Actual results may differ materially from forward-looking statements due to a number of risks and uncertainties including those associated with: SGI's more extensive international operations; economic conditions impacting the purchasing decisions of SGI's customers; SGI operates in a very competitive market, and increased competition and competitors' new products, have in the past, and may continue, to cause pricing pressure on SGI's products, which would negatively affect SGI's gross and operating margins, as well as other financial measures; a significant portion of the Company's revenues has come from a limited number of customers, and so the delay in placing an order, or the failure of a significant customer to place additional orders, could have a significant negative effect on SGI's financial performance; SGI relies on sales to U.S. government entities and has limited experience dealing with the U.S. government as a customer; SGI is unable to control component pricing, such as what our suppliers charge for central processing units, and, as has happened in the past, component pricing can rise unexpectedly, negatively impacting SGI's gross margins as well as other financial measures; SGI may be required to write-off additional significant amounts of excess and obsolete inventory; and risks relating to the consummation of the acquisition of SGI Japan, Ltd., including the risk that the business and employees of SGI Japan may not be integrated successfully into SGI's business. Detailed information about these and other potential factors that could affect SGI's business, financial condition and results of operations is included in SGI's annual report on Form 10-K under the caption "Risk Factors," in Part I, Item 1A of that report, filed with the Securities and Exchange Commission ("SEC") on September 8, 2010, as updated by SGI's subsequent filings with the SEC, all of which are available at the SEC's Web site at http://www.sec.gov. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this announcement. SGI undertakes no responsibility to update the information in this announcement, except as may be required by law.

Use of Non-GAAP Financial Measures

The non-GAAP financial measures discussed in the text of this press release are financial measures used by SGI's management to evaluate the operating performance of the Company and to conduct its business operations.  All non-GAAP financial measures discussed and presented in this press release excludes the revenue and associated costs of revenue deferred in accordance with Financial Accounting Standards Board ("FASB"), Accounting Standards Codification ("ASC"), ASC 985-605 "Software Revenue Recognition" for certain of the Company's transactions where software is more than incidental to the overall product solution sold, as well as revenue deferred in accordance with FASB ASC 605-25 "Revenue Recognition – Multiple-Element Arrangements" where the selling price of a delivered product or service exceeds its fair value. Non-GAAP gross profit and gross margin also excludes stock-based compensation expense, amortization of intangibles, excess and obsolete and related (recoveries), and inventory step up arising from acquisition of substantially all the assets of Silicon Graphics, Inc.  Non-GAAP operating expenses include Research and Development, Sales and Marketing and General Administrative expenses. Non-GAAP operating expenses exclude amortization of intangible assets, stock based compensation, restructuring and acquisition-related charges. Non-GAAP net income/(loss) per share excludes the same items as discussed above and, as well, the other-than-temporary impairment of equity investment and auction rate securities.  Management presents non-GAAP financial measures because it considers them to be important supplemental measures of performance. Management believes that the excluded charges are not central to the Company's core operating performance and uses the non-GAAP financial measures for planning purposes, including analysis of the Company's core operating performance against prior periods, the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management excludes from its non-GAAP financial measures the items cited above, whether or not recurring, to facilitate its review of the comparability of the Company's core operating performance on a period to period basis as well as to better understand the fundamental economics of a specific period's operational and financial performance. Management uses this view of the Company's operating performance for purposes of comparison with its business plan and individual operating budgets and allocations of resources. Management also believes that the non-GAAP financial measures provide additional insight for analysts and investors in evaluating the Company's financial and operational performance in the same way that management evaluates SGI's financial performance. However, these non-GAAP financial measures have limitations as an analytical tool, as they exclude the financial impact of transactions necessary or advisable for the conduct of the Company's business, such as the granting of equity compensation awards and are not intended to be an alternative to financial measures prepared in accordance with GAAP. Hence, to compensate for these limitations, management does not review these non-GAAP financial metrics in isolation from its GAAP results, nor should investors.

©2011 SGI. SGI and its product names are trademarks or registered trademarks of Silicon Graphics International Corp. or its subsidiaries in the United States and/or other countries. All other trademarks are property of their respective holders.

SOURCE SGI

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