SGI Seeks Chapter 11 Bankruptcy
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Struggling server maker Silicon Graphics (SGI) filed for Chapter 11 bankruptcy and proposed a plan to reemerge from that protection within six months.
SGI's creditors agreed to lop off some $250 million in debt, and also offered SGI a $70 million credit facility that will allow it to conduct business as usual.
SGI said the financing will help it pay its suppliers in full for all goods and services it receives throughout the bankruptcy proceedings.
"This financing will support SGI's business during the Chapter 11 process and has been made available to SGI because the lenders believe SGI's reorganization plan is viable and that the company can execute it," the company said.
This is a strong signal that its creditors still believe in the long-term viability of the company, despite a $43 million loss for its third fiscal quarter ended March 31.
In exchange for extending this credit, the bondholders will be allowed to convert their notes into newly issued common stock. Current shareholders, however, will be holding worthless paper.
SGI CEO Dennis McKenna apologized to current shareholders for leaving them behind, but said it was for the greater good.
"We regret the effect that this will have on SGI's shareholders," he said. But "SGI plays a critical role in the world's infrastructure. This needs to be preserved."
Earlier this year, McKenna outlined a product roadmap and a restructuring plan that included laying off 12 percent of its workforce.
The company has also assembled a new management team, including a new CEO and new CFO, and said it has recently closed on "some significant sales orders."
SGI was once a pioneer in the high-end computing space, selling high-performance servers, storage and graphics technology to researchers in life sciences, physics and other fields looking to tackle tough computing tasks.
Sales for the company's homespun computing gear, based on MIPS RISC processors and the antiquated IRIX operating system, have spiraled for the last couple of years.
The Mountain View, Calif., company has shifted its focus to selling open source, Linux-based machines with Intel Itanium chips. Problem is, Itanium hasn't been the savior SGI thought it might be.
SGI reported a 25 percent drop in revenues, from $144 million in the second quarter to $108 million in the most recent quarter.
The year-over-year drop in revenues was even steeper; SGI earned $159 million during the quarter ended March 31, 2005.