SGI Financial Numbers Hurt by Government Shutdown

SGI officials say a $12 million project with the government is on hold, and that revenues for the fiscal year could be 10 percent less than expected.

Supercomputer maker SGI is feeling the impact of the government shutdown and the looming threat around the debt ceiling.

SGI executives told analysts and journalists Oct. 10 that sales and profits for the most recent financial quarter were hurt by the partial government shutdown, and that revenues for the current fiscal year—which will end in June 2014—could fall by as much as 10 percent due to the shutdown and related impacts, most of which will be felt through the end of the current calendar year.

The shutdown essentially halted business with the federal government, including the freezing of funds related to a $12 million deal SGI’s Federal unit had in the works with an agency in the intelligence community, according to President and CEO Jorge Luis Titinger. In addition, the shutdown means that federal employees who SGI works with on business projects cannot answer phone calls or emails from vendors. That, combined with the uncertainty surrounding the shutdown and debt ceiling debate, makes it difficult for SGI executives to get a clear view of part of the company’s financial future.

In a conference call to talk about the preliminary quarterly financial results, Titinger noted that the company has had to learn how to deal with the uncertainty caused by the various budget crises in Washington, D.C., but that the latest situation has proven particularly difficult.

“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,” he said. “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.”

Much of the government shut down Oct. 1 after Republican congressional leaders were unable to convince the Obama Administration to dismantle or delay the Affordable Care Act (ACA) and refused to vote for a continuing resolution to keep funding the government. Republicans also are threatening to refuse to raise the country’s debt ceiling if some of their demands around the ACA or spending are not agreed to.

SGI generated $147 million in revenue for the most recent quarter, which ended Sept. 27, down from the $160 million to $170 million company officials in August forecast. They had projected full-fiscal-year revenues to hit about $760 million, but said that they now expect revenues to come in 10 percent below that.