SGI Sheds Graphics Software Business

Aiming to focus on its specialty for selling high-performance computing systems, Silicon Graphics (SGI) Thursday agreed to sell its Alias graphics software business to investment firm Accel-KKR for $57.5 million in cash.

SGI, which expects to realize some $50 million in net proceeds after capital adjustments and transaction costs, said in a statement the deal would help the company focus on high-performance Linux systems.

The move had been expected for some time. SGI said in February it was negotiating to sell its graphics software business in order to focus on improving its current computing line of high-end computing and storage servers and visualization software. SGI also offers workstations and advanced graphics systems on its IRIX operating system.

Rivals IBM, HP and Sun Microsystems are stepping up their efforts in this increasingly lucrative arena. Once relegated to back-room departments and individual developers, Linux is blossoming into a hearty open-source operating system and is seen as challenging Microsoft’s proprietary Windows systems for market share.

Analysts quote the Linux market as a multi-billion-dollar business; while Linux has primarily been used in smaller servers, engineers and programmers are currently scaling it to power high-end machines traditionally served by UNIX. SGI sees the value in this and is pushing forward, offering servers and workstations based on Linux.

“The sale of our Alias business unit is another step in our long-term
program of focusing on our core systems business,” said Bob Bishop, chairman and CEO of SGI. “We’re applying our full attention to build momentum in Linux-based high-performance systems.

The play isn’t the first time SGI has bought and sold a successful business. SGI bought supercomputing outfit Cray Research in 1996 for $767 million and later sold it off in 2000 to Tera Computer.

Meanwhile, selling Alias effectively closes the book on an eight-year
relationship between the two companies. Mountain View, Calif.-based SGI bought Alias in 1995, along with Wavefront Technologies, for $500 million to stave off competition from Microsoft in the graphics software sector. Both companies were combined to form the Alias/Wavefront combination that would create 3D animation software for feature films.

Sageza Research Director Charles King said the sale is indicative of SGI’s inability to fix on one particular business model, which ultimately hampered the company’s ability to grow.

“They’ve gone from being the biggest alligator in the pond of high-end graphics to the smallest alligator in the pond of general purpose servers,” King told King said he thought would do better to stay at the forefront of high-end graphics than tangle with computing giants IBM, HP and Sun.

Alias has been operating as an independent business. SGI said it does not expect the divestiture to significantly affect SGI’s business or direction. The companies said the deal is expected to close during the second quarter.

Alias will operate as an independent company and the current team, as well as products, services and support will remain intact. The company pulled in revenues of approximately $51.8 million and a declared profit of about $4.9 million for the nine months ended March 26, 2004. In the most recent quarter, the Alias business contributed revenues of approximately $17.6 million and an operating profit of approximately $1.8 million, according to SGI’s financial results.

SGI is slated to unveil its financial results for the first quarter April 20 and is expected to discuss the Alias sale.

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