Silicon Graphics takes a Hit from Government Shutdown

by Jenn Cano on October 15, 2013

Washington is deadlocked as it enters the 15th day of a partial government shutdown.  On October 1st, much of the government shut down after Republican congressional leaders were unable to persuade the Obama Administration to dismantle or delay the Affordable Care Act (ACA).  They also refused to vote for a continuing resolution to keep funding the government. Republicans are threatening to refuse to raise the country’s debt ceiling if some of their requests around the ACA or spending are not agreed to.

Unfortunately for the IT industry a government shutdown means bad news.  Silicon Graphics International Corp. (SGI) in particular has sited the government shutdown as the source of decline in sales and profits for the most recent financial quarter.   In fact, SGI believes that revenue for the year could be 10% lower than previously expected due to the federal government shutdown. 

The federal government shutdown halted business which included a $12 million deal that SGI had in been working on with an agency in the intelligence community according to Jorge Titinger SGI’s CEO.  The parameters of the shutdown prohibit federal employees to answer phone calls or emails from vendors, which has put a damper on business for SGI.  The shutdown is causing a lot of uncertainty and making it difficult for SGI executives to forecast the company’s financial future.

In fact, Titinger said, “In our Federal business, we had anticipated some amount of disruption in customer decision making on funding, leading up to the expiration of the continuing resolution on Sept. 30.  Over the past nine months, we have been through two similar deadlines with the fiscal cliff and the sequester, and given this experience, we had assessed the risks to revenue and pursued appropriate actions to recognize our revenue targets for the quarter. However, like most of the business community, we did not expect that the government would shut down, nor did we anticipate a complete halt to all transaction activity that occurred in the final few days just before the shutdown.”

Looking ahead, Silicon Graphics now sees an adjusted profit between two cents to four cents a share on about $147 million in revenue, lower than the prior projection of seven cents to 14 cents in profit on $160 million to $170 million in revenue.

What’s been difficult for SGI is that they have a significant number of government customers who range from the Department of Energy to Homeland Security.  In fact, about half of SGI’s business comes from the U.S. government.   Titinger also stated, “However, the opportunities we're pursuing are generally large deals with long sales cycles and lengthy acceptance criteria.  Close to half of the pipeline is inside Federal, which currently has limited visibility. Although most of the projects we are involved with are considered mission-critical, we have seen unprecedented halts to programs over the past week. For example, the GEOINT Conference, the largest tech gathering that serves the intelligence community, was canceled for the first time in its 10-year history with only one week's notice.”

Titinger said that time was a key factor and it was difficult to say how long the company would feel the negative impacts from the partial shutdown.   Just how hard the impact will be depends on how long the government stays shutdown and whether or not the debt ceiling is raised.  Economists, financial analysts and many government leaders have predicted that a failure to raise the debt ceiling—thus forcing the United States to default on its debts—could have significant and widespread effects not only in the United States, but worldwide.

How is the government shutdown affecting your business?  Leave us a comment below and let us know.

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