How Getting Leaner Fattened SGI’s Outlook
When Bob Bishop took over as chief executive of Silicon Graphics Inc. in 1999, he decided that for the long-struggling company to begin growing again, it had to think smaller.
“The world’s got enough general-purpose commercial computing,” Bishop told Reuters. “The choice we made was to go back to our roots.”
The company, based in Mountain View, Calif., was best known in the 1990s for its high-end computers. SGI 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 Corp., Hewlett-Packard Co. and Dell Inc. SGI failed to muster major market share.
When Bishop took its reins, SGI had 9,000 employees. Annual revenue peaked at $3.7 billion in 1997. Today, SGI has 3,100 employees, and revenue for its fiscal year ended June 27 was $962 million. It hasn’t 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 was “clearly making progress” on returning to profitability but had not committed to a date when it would get back in the black.
With its focus on high-performance computing, the company 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 respected Numaflex system architecture. Numaflex stitches together microprocessors so they can crunch vast amounts of data simultaneously.
The Altix 3000 can support as many as 256 processors; it is priced at $100,000 and more. The Altix 350, essentially a smaller version of the 3000, starts at $12,000.
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, its 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 fiscal year 2004.
SGI shares rose 23 cents to $2.80 on the New York Stock Exchange on Friday. So far this year, the stock has more than doubled.
