SGI Restructuring an ‘Image’ Problem

Fighting for survival at the top end of the server market, Silicon Graphics (SGI) this week said it will reduce its workforce by ten percent.

The Mountain View, Calif.-based firm, estimates the reorganization will cost the company between $15 and $20 million dollars, most of which will cover severance costs. The charge will be booked for the quarter ending June 27.

About 400 workers will get the pink slip. Hardest hit in the layoffs are administrative and marketing personnel. Least affected will be “customer facing” staff such as sales. Engineering also took a proportionally smaller hit.

Beginning with the quarter ending September 26, SGI said it hopes to see a quarterly reduction in expenses of approximately ten million.

Bob Bishop, chairman and CEO of SGI, said, despite good news in the company’s defense sector business and Altrix superclusters and servers, revenues have been disappointing.

“Our intent is to bring expenses in line with revenues. We are in the process of taking other specific actions to increase revenue and lower costs,” he said.

Greg Estes, vice president for corporate marketing at SGI, said the company could not be more specific about these plans.

The company could do a better job of marketing according to Dan Kusnetzky, vice president for systems software research at IDC in Framingham, Conn. “SGI is not a well known brand,” said Kusnetzky. “If people remember them it is probably by the older name of Silicon Graphics.”

“I have brought back the Silicon Graphics name,” said Estes. “It was a mistake to let that brand awareness fade.”

“SGI has great technology,” said Kusnetzky. “That has never been their problem. But they have chosen a niche market, focusing on high performance computing for science, graphics, and content creation.”

Kusnetzky went on to say others are encroaching on that niche from below. “At the low end you have Linux and Windows,” said Kusnetzky, “and at the midrange Dell and HP.”

SGI builds its own hardware, powered by MIPs chips, and running IRIX , SGI’s flavor of UNIX.

“IRIX is a world class UNIX.” said Kusnetzky. “It can run a symmetric NUMA (Non Uniform Memory Access) architecture with over 500 processors in the same box.”

SGI does not compete directly with other UNIX vendors, such as IBM , Hewlett-Packard and Sun Microsystems for the so-called “enterprise” or corporate business market, but Kusnetzky thinks the company could play there. “SGI would be wonderful for high performance transaction processing,” said Kusnetzky. “But no one ever thinks of them in that context. It’s like having a high performance engine that you only put inside a sports car. But what if you need a bus?”

Estes countered that SGI needs to focus on what it does best. “Yes our MIPs systems handle IO possibly better than anyone else, and IRIX is a very good operating system. “But time has taught us that you need more than the ability to run Oracle to compete with the other enterprise players.”

Estes said he expects that, in the longer term, Altix, SGI’s line of Linux servers could start to make inroads into the enterprise. “We may even look at OEM possibilities there,” said Estes.

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