THE CUTTING EDGE : A New Dimension : Silicon Graphics to Buy Two 3-D Software Firms


Predicting huge growth in the trendy new business of manufacturing digital illusions, Silicon Graphics Inc. said Tuesday that it plans to purchase two leading 3-D graphics software companies in a stock swap valued at about $500 million.

In acquiring Alias Research Inc. and Wavefront Technologies Inc.--whose tools have helped create a broad range of visual effects, from Jim Carrey's contortions in "The Mask" to the football-playing beer bottles in the Bud Bowl commercials--Silicon Graphics hopes to expand the market by integrating the software with its high-powered computer hardware to create one cohesive package that's easier to use.

"The vast majority of the entertainment industry does not have the expertise to use these tools--so they don't use them," said Mike Ramsay, president of Silicon Studios, the entertainment industry subsidiary of Silicon Graphics. "We think this will greatly broaden the number of customers who find this accessible."

SGI also hopes to stave off competition from formidable Microsoft Corp., which last year purchased Alias and Wavefront's biggest competitor, SoftImage Inc. The software giant has announced plans to make SoftImage's tools--which previously worked only on SGI workstations--available on less-expensive personal computers that use Microsoft Windows NT.

"Microsoft kidnaped SoftImage. This is a defensive move for SGI," said analyst Charles Finnie of Volpe Welty & Co. in San Francisco.

All the competitors are predicting not only a rapid expansion of existing markets for 3-D software, but also the emergence of broad new opportunities as ever-more-powerful personal and interactive television systems bring advanced graphics capabilities to consumers.

Santa Barbara-based Wavefront and Toronto-based Alias--both pioneers in three-dimensional graphics--are longtime competitors. Traditionally, Wavefront's strength lay in animation, whereas Alias led the way in computer modeling. Both companies found their original customers among industrial designers in the auto and aircraft industries, but entertainment has been the fastest-growing part of their businesses.

"We created digital skin, then they did; now they've created digital hair and we're working on digital clothing," said Mark Sylvester, one of Wavefront's co-founders. "With both of us working together, we can attack the bigger technical problems instead of duplicating work."

Those challenges include designing realistic lip-syncing, synthetic actors that respond to commands and creating digital inventories of sets, costumes and characters that movie studios can use to save time and money.

Veteran customers of Silicon Graphics and the two software firms applauded the move Tuesday, noting that up to now Silicon Graphics' hardware has not been taken full advantage of by software makers.

"I have been yelling at Silicon Graphics and the software vendors for a long time to get their act together," said Tim McGovern, senior vice president of creative and technology affairs at Sony Pictures Imageworks, which used equipment from all three in creating the visual effects for last summer's blockbuster "Speed."

Jim Wickett, vice president of business development for Rocket Science Games, a Palo Alto start-up that has used SoftImage in producing sophisticated CD-ROM video games, said the proposed merger might persuade his company to switch.

And the broader markets for 3-D technology are beginning to emerge. Earlier this week, Apple Computer announced plans to equip all of its Power Macintoshes with built-in 3-D graphics capabilities.

Apple's QuickDraw 3D, scheduled to ship next summer, looks ahead to the day when consumers will use data gloves to interact with three-dimensional images on their computers.

"And we sell as many computers in a week as Silicon Graphics does in a year," said David Nagel, Apple senior vice president.

"We believe the emergence of networks--on-line, broad-band and everything in between--is going to dramatically increase the rate at which people consume high-quality digital content, and that makes 3-D animation software strategically very important," said Laura Jennings, a senior director of business development in Microsoft's consumer technology group.

Based on Silicon Graphics' closing stock price on Feb. 3, Silicon Graphics will issue about $500 million in stock for the acquisitions.

The software companies will become a subsidiary of Silicon Graphics. Robert K. Burgess, currently president and chief executive of Alias and a former Silicon Graphics executive, will become president of the new company. Michael S. Noling, currently president and chief executive of Wavefront, will report to Burgess as vice president of operations.

In Nasdaq trading Tuesday, Alias Research closed at $26, up $4.25; Wavefront closed at $14.25, up 12.5 cents. Silicon Graphics closed at $31, down 62.5 cents, on the New York Stock Exchange.


Soaring Sales

Sales of 3-D software, in millions of dollars:

1993: $70

1994: $105

1995*: $140

1996*: $200

* Estimate

Source: Volpe Welty & Co.

The Companies

Silicon Graphics Inc. acquisition of Wavefront Technologies Inc. and Alias Research Inc. will add to the company's domination of the $10-billion market for high quality graphics software and computers.

Silicon Graphics Inc.

Headquarters: Mountain View, Calif.

CEO: Edward R. McCracken

Employees: 5,000

1994 Revenue: $1.5 billion

1994 Profit: $141 million


Wavefront Technologies

Headquarters: Santa Barbara

CEO: Michael S. Noling

Employees: 150

Revenue: $26.5 million

Profit: $2.8 million


Alias Research

Headquarters: Toronto, Canada

CEO: Robert K. Burgess

Employees: 250

Revenue: $50.3 million

Profit: $7.7 million

Note: Revenue and profit figures are taken from past four quarters and do not necessarily relfect fiscal-year figures.

Sources: Lexis/Nexis news service; SEC filings; Bloomberg Business News.

Researched by JENNIFER OLDHAM and DAVID NEIMAN / Los Angeles Times

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