The return of Silicon Graphics

Duncan Martell

SAN FRANCISCO: When Bob Bishop took over as chief executive of long-struggling Silicon Graphics Inc. in 1999, he decided that for the once high-flying company to begin growing again, it had to think smaller.

"The world's got enough general purpose commercial computing. The choice we made was to go back to our roots," Bishop informed.

Based in Mountain View, California, SGI was best known in the 1990s for its high-end computers. But it acquired supercomputer maker Cray Research Inc. in 1996 when lower-cost PCs were the rage. The move proved disastrous and Cray was sold in 2000.

SGI's next move was to compete in the computer server market against the likes of IBM, HP and Dell. Again, SGI failed to muster major market share.

When Bishop took its reins, SGI had 9,000 employees. Annual revenues peaked at $3.7 billion in 1997. Now, SGI has 3,100 employees and revenue for its fiscal year ended June 2003 was $962 million. It has not earned an annual profit since 1999.

In February, SGI announced plans to sell its Alias software business, marking its latest move to refocus on high-performance computers using Intel Corp.'s powerful Itanium 2 processors and the Linux operating system.

Chief Financial Officer Jeff Zellmer said SGI is "clearly making progress" on returning to profitability, but has not committed to a date when it will get back in the black.

CHANGING PATHS AGAIN

With its focus on high performance computing, or HPC, the company now targets defense, science, manufacturing and energy industries where the amount of data manipulated in real time is measured in terabytes. A terabyte is roughly equivalent to the information on printed paper that would take 50,000 trees to manufacture.

SGI is pinning its future on its Altix line of specialized computers, which use Itanium 2 chips and either the SuSe or Red Hat Linux operating system with its well-respected Numaflex system architecture. Numaflex stitches together microprocessors so they can crunch vast amounts of data simultaneously.

The Altix 3000, which started shipping in February 2003, can now support up to 256 processors. In January, SGI rolled out the Altix 350, essentially a smaller version of the 3000 that starts at $12,000. The Altix 3000 servers cost from $100,000 to substantially more.

Analysts have taken note. Needham & Co.'s Charles Wolf raised his stock rating to "buy" from "hold" in February, citing SGI's worldwide installed base, new product line, an improving balance sheet and the proposed sale of the Alias division.

Wolf forecasts that revenue for SGI's fiscal year ending in June 2005 will rise to $1.017 billion from an estimated $936 million for its 2004 fiscal year.

© Reuters