Press Release

SGI Reports First Quarter Fiscal Year 2008 Results

SGI Achieves 43 Percent Bookings Growth

SUNNYVALE, Calif. (November 6, 2007)—SGI (NASDAQ: SGIC) today announced financial results for the first quarter of its fiscal year 2008, which ended September 28, 2007.

First Quarter FY08 Highlights
Overall in its first quarter, SGI:

  • Grew bookings more than 40% over the fourth quarter of fiscal 2007 with key wins in target growth areas
  • Continued stability in pro forma results
  • Achieved its goals for revenue, expenses and cash

"The first step in our growth strategy is to increase our bookings, so I'm very pleased with our order rate this quarter," said Bo Ewald, SGI Chief Executive Officer. "We saw very good momentum in our bookings, with an increase of 43% over Q4. I'm particularly encouraged by the composition and mix of the Q1 orders, which came from across our target markets with the largest single order being under $5M. That is a good step in our plan to build our base of customers without having to rely on very large single system orders."

"Our pro forma revenue is stable and our expenses were under control, with operating results in line with our goals. A growing portion of our business is focused on the sale of high value-add software and services, resulting in a greater number of our transactions being impacted by software revenue recognition accounting. Our GAAP results reflect this business and financial transition," said Kathy Lanterman, SGI Chief Financial Officer. "We anticipate that the long term result of this transition will be more stable GAAP results."

In this press release, the company uses certain pro forma financial measures that are not calculated in accordance with GAAP, or non-GAAP financial measures. These measures may be referred to as "pro forma" in this press release. In addition, the company uses bookings, which reflect authorized orders for SGI product and professional services received in the period, as a measure of its performance. Management believes that these non-GAAP financial measures and bookings are useful to investors because they facilitate period to period comparisons of SGI's performance and because they help investors view the company's results of operations through the eyes of management and the company's lenders. SGI's credit line covenants, management reporting and incentive plans are measured against certain of these non-GAAP financial measures.

GAAP Q1 Results
GAAP revenue for the first quarter was $91.1 million, compared to $122.3 million in the fourth quarter. The first quarter GAAP operating loss was $27.2 million, compared to $24.8 million in the fourth quarter of fiscal 2007. GAAP operating expenses were $54.7 million for the first quarter of 2008, as compared to $56.9 million for the fourth quarter of fiscal 2007. Backlog at the end of the first quarter of 2008 was $65.0 million compared to $66.5 million at the end of the fourth quarter of fiscal 2007.

Pro Forma Q1 Results
Pro forma revenue was $120.7 million in the first quarter of fiscal 2008, compared with $141.5 million in the fourth quarter of fiscal 2007. In the fourth quarter SGI had a single large transaction valued at approximately $40 million, and in the first quarter the company had a single large transaction with pro forma revenue of approximately $20 million. Excluding these two large transactions, SGI's pro forma revenue results for the two quarters were comparable.

"We were again pleased with the growth in our Altix server revenue this quarter, across all server product lines," added Lanterman.

Pro forma revenue excludes the impact of fresh-start accounting and the deferral of the company's recognition of revenues for certain of the company's transactions where software is more than incidental to the overall solution pursuant to AICPA Statement of Position SOP 97-2, Software Revenue Recognition ("SOP 97-2"). Pro forma gross margin for the first quarter, which is adjusted for similar items, was 34.3% compared with 35.2% in the fourth quarter of fiscal 2007, with the decrease being driven primarily by product mix. Pro forma operating expenses, which exclude restructuring and bankruptcy-related expenses, stock-based compensation expense and amortization of intangibles, were $51.5 million in the first quarter of fiscal 2008 compared with $53.2 million in the fourth quarter of fiscal 2007. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the first quarter of fiscal 2008, as defined in the company's debt agreements, were a loss of $3.8 million, compared with a $2.8 million gain for the fourth quarter of fiscal 2007.

"We continue to build the foundation for growth. We're in it for the long term, and we're pleased with our start of fiscal 2008. We are attacking the market with confidence and optimism," added Ewald.

A reconciliation of the non-GAAP financial measures used in this press release to the company's GAAP results of operations, including an illustration of the impact of the company's fresh start accounting and the impact of the implementation of SOP 97-2, is attached to this press release and is also available at www.sgi.com/company_info/investors.

Financial Statements

Conference Call
SGI will conduct a conference call today at 2 p.m. PT to provide additional details. The webcast is available at http://www.sgi.com/company_info/investors/webcast.html. The conference call can be accessed by dialing (877) 495-0297 or (706) 643-9931 for participants outside of North America, conference ID: 22598535. An audio replay of this call will be available after 5 p.m. PT today at (800) 642-1687 (passcode: 22598535) or (706) 645-9291 (passcode: 22598535) and will be available until November 13, 2007 midnight PT. After November 13, 2007, the call will be available as an archived webcast. All links to the archived webcast and audio replay are available through SGI's web site at www.sgi.com/company_info/investors/.

SGI - Innovation for Results™
SGI (NASDAQ: SGIC) is a leader in high-performance computing. SGI delivers a complete range of high-performance server and storage solutions along with industry-leading professional services and support that enable its customers to overcome the challenges of complex data-intensive workflows and accelerate breakthrough discoveries, innovation and information transformation. SGI helps customers solve significant challenges, whether it's enhancing the quality of life through drug research, designing and manufacturing safer and more efficient cars and airplanes, studying global climate change, providing technologies for homeland security and defense, or helping enterprises manage large data. With offices worldwide, the company is headquartered in Sunnyvale, Calif., and can be found on the Web at sgi.com.

© 2007 SGI. All rights reserved. SGI, Altix, the SGI cube and the SGI logo are registered trademarks of SGI in the United States and/or other countries worldwide. All other registered trademarks mentioned herein are the property of their respective owners.

This press release contains forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth herein, including the risks and uncertainties discussed under the caption "Factors That May Affect Results" and elsewhere in SGI's Form 10-K or Form 10-Q most recently filed with the Securities and Exchange Commission. These forward-looking statements speak only as of the date hereof. SGI disclaims any intent or obligation to update these forward-looking statements.