Silicon Graphics Inc. to Start New Subsidiary : Computers: The firm says its Silicon Studios will focus on entertainment applications.
Silicon Graphics Inc., whose computer technology drives the digital special effects in “Forrest Gump,” “True Lies” and nearly every other big summer movie, said Thursday that it is launching a subsidiary focusing on the entertainment industry.
SGI Chairman Edward McCracken said the new division, Silicon Studios, is expected to double the Mountain View, Calif.-based firm’s entertainment industry revenue to $400 million over the next year. The unit will sell computer equipment for creating movie special effects, sophisticated video games and high-tech theme park attractions. The move marks the first time a computer company has established a subsidiary specifically to target the entertainment business, where the production of film, TV, books and games is becoming increasingly computerized.
It also signals a shift for SGI, whose business has traditionally been rooted in military and industrial applications. As interactive television takes off over the next decade, SGI--which Thursday reported record earnings of $141 million on revenue of $1.5 billion for the fiscal year ended June 30--expects the entertainment market to grow to $5 billion.
“Five years ago, we did most of our high-end graphics work for the military simulation market, training pilots how to fly, and then used the same technology in entertainment,” McCracken said. “Now, working with Disney is even more demanding than most of the military applications we work on.”
McCracken was referring to the new Aladdin ride at Epcot Center in Florida that SGI developed with Disney. SGI computers create a three-dimensional illusion that riders are flying through space on a magic carpet. Such “virtual reality” attractions are thought to represent a growing market in theme parks and high-tech arcades nationwide, and Silicon Studios hopes to cash in on the trend.
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SGI already has alliances with Time Warner to create an interactive TV system in Orlando, Fla., and with Nintendo to build a next-generation video game system.
Another mission for the new subsidiary is to find a mass market for SGI’s notoriously expensive computer graphics workstations. As computer prices plummet and the performance of inexpensive workstations and PCs zooms, SGI is no longer able to charge a large premium and thus must make up in volume what it is losing in falling prices. There are more than 110 million personal computers in homes and offices worldwide, compared to a mere 123,000 SGI machines.
Its main competitor in the entertainment world is Apple Computer, whose Macintosh systems have been widely embraced by multimedia developers.
A survey by the San Jose consulting firm Dataquest late last year found that Macintoshes were preferred by 62% of multimedia developers. One reason is price. An average Indio--SGI’s least-expensive workstation--costs about $15,000, nearly twice as much as a high-end Macintosh that can do the same work, albeit more slowly.
“Our aim is to take our success at the high end of the product line and drive it down to low-end, low-cost delivery platforms as fast as possible,” said Mike Ramsay, senior vice president of Silicon Graphics’ visual systems division who will become the president of the new subsidiary.
SGI stock fell $1.125 to $22.50 Thursday on the New York Stock Exchange because earnings, though strong, did not meet analysts’ expectations.
