To Our Stockholders:

We reported very gratifying results for the first quarter. Revenues totaled $427 million, an increase of 42% over first quarter of last year. North America generated 57% of total revenue, Europe 23%, and the Pacific Rim the remaining 20%. Net income for the quarter increased 63% to $42 million, or $0.27 per share, compared with net income of $26 million, or $0.17 per share, in the same period last year. There was healthy demand across our product lines and in all our major geographic regions. Additionally, we made progress in asset management and increased our cash and investments by $61 million during the quarter.

Our product line-up is perhaps the strongest it has been in the Company's history. We offer several dozen computing systems at a variety of price/performance points, ranging from the desktop to supercomputing. One of our key advantages is our ability to work with leading edge customers to develop technologies for our high- end systems that we can then flow through our product line to meet the needs of customers at all price points. During the first quarter we significantly increased the performance of our products in many ways.

First, we increased the graphics performance of our Indy desktop system by adding XZ graphics, thereby attaining a level of graphics performance previously available only on higher-priced systems. We also increased the compute performance of our Indigo2 line of mid-range desktop workstations with the introduction of the Indigo2 R4600. This new MIPS microprocessor boosts the performance of the Indigo2 systems by approximately 33% without an increase in price. Our momentum in this market was evidenced by the fact that our desktop workstation revenues increased nearly 50% over the same quarter a year ago, and accounted for 59% of shipments for the September quarter.

Additionally, we announced the POWER Indigo2 and the POWER Onyx. These graphics systems are based on the same MIPS RISC R8000 microprocessor initially developed for our POWER CHALLENGE supercomputers. The POWER Indigo2 desktop workstation, expected to ship in the next few months, is well-suited for tasks in areas such as computational fluid dynamics, manufacturing design, chemistry, and oil and gas exploration. Researchers and scientists who are looking for even higher levels of performance coupled with leading edge graphics capabilities will look towards our POWER Onyx graphics supercomputer to analyze and visualize large problems such as global weather modeling, fluid dynamics, and image processing.

At the very high-end of our product offering, we're changing the dynamics in the traditional supercomputing marketplace with our new POWER CHALLENGE products. The POWER CHALLENGE, which began shipping in volume during first quarter, builds on Silicon Graphics' years of experience in symmetric multiprocessing by delivering supercomputer class performance at a fraction of the cost associated with traditional vector supercomputers. The need for lower cost, high performance supercomputers in the scientific community was reflected in the large number of POWER CHALLENGE systems and upgrades we shipped in the first quarter of availability. In fact, the high-end of our business, which includes POWER CHALLENGE, CHALLENGE servers and Onyx graphics workstations, grew 38% from the year ago quarter and represented 41% of our shipment revenue.

As the entertainment industry moves from analog technology to digital technology several entertainment companies have embraced us as their leading supplier of visual computing systems. In July, we attended SIGGRAPH, the premier graphics trade show. At the show, we worked with our partners to demonstrate some of the recent developments in computer-generated animation and special effects, like those used in movies such as "Forrest Gump", "The Mask", and "The Flintstones." These new capabilities, that allow movie makers to integrated computer-generated effects with live action characters, are giving birth to a new generation of digital enhancements that are blurring the distinction between live filming and special effects.

In early October, MIPS Technologies, Inc. (MTI), our wholly-owned subsidiary, announced the next generation MIPS RISC microprocessor design, the MIPS R10000. It's a single-chip superscalar 64-bit microprocessor featuring numerous innovations like the MIPS Avalanche bus that breaks through the chief bottleneck in microprocessor performance, the time spent feeding data and instructions to the processor. By focusing on more than just sheer calculation speed, the MTI engineers have produced a design that can dramatically improve the performance of a customer's applications. Additionally, MTI increased the number of semiconductor partners to seven by announcing that Philips Semiconductors will become an architecture licensee of the MIPS R3000 microprocessor family.

This quarter, we've enhanced our graphics and compute performance throughout our product line, thereby strengthening our leadership position in the market. We also continue to increase our customer base, strengthen our financial foundation, and increase our opportunities in new emerging markets.

As always, we extend our thanks to our employees, customers and suppliers who make our success possible, and to our stockholders for their continued support.

Sincerely,

Edward R. McCracken		Thomas A. Jermoluk	
Chairman & CEO			President & COO          

Silicon Graphics and the Company's logo are registered trademarks, and CHALLENGE, Indigo2, Indy, Onyx, POWER CHALLENGE, POWER Indigo2, and POWER Onyx are trademarks of Silicon Graphics, Inc. MIPS and the R3000 are registered trademarks and R8000, R10000 and MIPS Avalanche are trademarks of MIPS Technologies, Inc. R4600 is a trademark of Integrated Device Technology, Inc.



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