SGI Cuts and Pastes

SGI, the company known by most as Silicon Graphics, announced last week that it was restructuring, laying off up to 3000 jobs, and spinning off some of its businesses and technologies. SGI’s infant Windows NT program was caught in the crossfire, including the company's innovative Visual Workstation line and its just-released low-end servers, which the company plans to roll into a joint venture with another vendor. Following the restructuring, SGI will be a company of 9000 employees with fewer products. Richard Belluzzo, SGI chairman and CEO said, “We’re putting more energy into fewer focuses. It’s all about focus, simplifying our business and extending our reach.” In early 1999, SGI employed 10,300 people with revenue of $2.8 billion. SGI plans to close offices in some of the 50 countries worldwide that it does business in. This restructuring is SGI’s third in 3 years. SGI arrived on the NT scene too late and has had trouble penetrating the NT market. Part of the problem has been that the company has not experienced the same level of distribution that competing vendors, such as Compaq, HP, IBM, and Dell, have enjoyed. Furthermore, SGI made some design mistakes with the Visual Workstation, including using a 3-volt bus when most add-in boards support 5 volts. Even though SGI was projecting that 80 percent of sales for its base-model 1400 quad server would come from NT, the company will abandon this OS in favor of developing Linux boxes. Although SGI will continue to build Intel boxes, it will not port its Irix technology to NT. Instead, SGI will move to make Linux run on its line of systems. Belluzzo referred to the new world order that’s caused by Linux as the reason for the changes. SGI made other announcements that amount to more bad news for NT. SGI plans to axe the company’s highly regarded Fahrenheit graphics technology, which the company developed jointly with Microsoft, Intel, and HP. Fahrenheit was meant to replace OpenGL, Microsoft3D, and Direct Draw with a set of APIs, a software development kit (SDK), and device drivers to become an industry standard. Talk of Microsoft taking over the effort has surfaced recently. SGI will also transfer many graphics engineers and some patents to Nvidia, one of SGI's strategic partners. Apparently the Cray supercomputer business is on the sales block. SGI bought Cray for $739 million in 1996. Until SGI either finds a buyer or a partner for Cray, it will continue to execute its current product strategy for new Cray products. Analysts also expect SGI to sell its S2V vector line of supercomputers. Belluzzo said, “This is the next phase of our transformation project that was built on a number of actions we’ve taken over the past 18 months. What we want today is to get more aggressive about the Internet.” As a result, SGI is creating a business unit to provide broadband support for streaming video and audio content, with server products and other devices. You can expect to see Origin servers running Linux appear as SGI products in the next 6 months. The company will also spin off MediaBase as a separate company, which is software the company developed to support streaming content over the Internet a la RealNetworks. SGI will remain a minority partner in the MediaBase venture. While SGI was announcing its restructuring plans, the company also announced that it has partnered with Veritas Software to complete a journaled Windows 2000 (Win2K) file system and will now build a similar file system for Linux. SGI will add features of the Irix OS to Linux. SGI said that once it completes its adoption of Intel’s IA/64 (Merced) platform, the company will discontinue development of Irix. SGI also announced a marketing alliance with NEC Japan for the company's Origin servers. Since the restructuring announcement, SGI stock has come under selling pressure. Some industry experts believe the company might be setting itself up to be bought, in part or in whole. Although one account suggests that HP might be a buyer, no confirmation of this rumor has appeared.

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