Course 410: Distressed Stocks
How Bad Is It?
In this course
1 Introduction
2 What Went Wrong?
3 How Bad Is It?
4 Is the Stock Despised?
5 How Cheap Is It?
6 Conclusion: Putting It All Together

We have identified SGI's problems. The next step is to assess the damage to its finances. If operating distress has forced a company into financial distress, its prospects are especially bleak. SGI is obviously hurting: It lost money in eight of the previous 10 quarters through March 2000, and shareholders' equity has been declining. There are some potentially encouraging signs. The company made a profit in fiscal 1999 (which ended in June), but only because of a $250 million windfall from the spin-off of its MIPS Technologies MIPS subsidiary. From a strategic standpoint, SGI has been getting rid of some of its proprietary technologies and focusing more on more adaptable products based on widely used standards, such as Intel INTC chips and the Linux operating system. Executing this transition smoothly will not be easy, but at least SGI has identified its problems and is working to remedy them.

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