Timothy Prickett Morgan writes at The Register yesterday about the opportunity an historically down market presents some of our vendors in particular: going private. Why? Control.
With Uncle Sam now saying that it will dedicate as much as $250bn of the $700bn bailout plan to buying up stock in the leading (i.e. remaining) big banks in the States, the banks will be able to make loans sufficient for some important but financially challenged IT companies to buy themselves off the markets. And by doing so, they will be able to invest when and how they see fit and be better able to create strategies for their long-term survival and future profitability – rather than jumping to the 13-week beat of the Street.
Who? Sun, Cray, and SGI are among the companies he lists that are of interest to us
…A mid-day today, Sun’s stock is trading at $5.90 a pop, which gives it a market capitalization of $4.28bn. As of the end of its fiscal 2008 year in June, Sun had $2.27bn in cash and $429m in short term investments (probably lower now, but who knows what Sun has invested in). The point is, with another $1.58bn or so plus a modest premium, Sun could buy up all of its own stock and be done with it.
…Supercomputer maker Cray also makes the IT privatization list. But Cray doesn’t have much cash, its revenues are choppy, and its does not profit in as many quarters as it loses money in recent years. At the end of June, Cray had $90.1m in cash and $14.9m in short term investments, but today it has a market cap of only $149m. Cray has only made $72.9m in sales in the first half of 2008 and lost $15.7m doing it.
…Silicon Graphics, once a high-flying Unix workstation and supercomputer maker, should also think about going private. The company’s shares trade on the small cap portion of the NASDAQ exchange, and it has a market capitalization of $101m as we go to press. In the first six months of 2008, SGI posted sales of $172.9m but booked losses of $74.9m. The company had just under $40m in cash as the June quarter closed.
Regarding Cray, the company filed a Form 8K with the SEC last week announcing that it has used $40.2M of its cash to buy down some of its notes at a discount (more on this later), so it may not actually have as much cash as Prickett Morgan thinks.