HPE Buys SGI for $275 Million: How Far the Mighty Have Fallen

NEWS ANALYSIS: SGI used to be Google. Ironically, Google, which used to be SGI's tenant, now owns SGI's sprawling former campus; now HPE will soon own SGI.

Picture this: The newly elected president and vice president of the United States are visiting Silicon Valley to introduce themselves to key movers and shakers, pledging the full support of Washington in promoting U.S. innovation and name-dropping IT products worldwide.

They fly into Moffett Field Naval Air Station in Mountain View on Air Force One and Two, respectively, select a hot company and stage a media event to make their speeches to fire up the crowd, investors and Wall Street.

Might this be the scene next February with a new U.S. president? It could happen, but this event is exactly what took place on Feb. 22, 1993, when newly inaugurated President Bill Clinton and Vice President Al Gore visited Silicon Valley. They thanked everybody for their help in getting elected, pledging their support of the fast-growing industry that was then pre-Internet Silicon Valley.

The location of choice for the media event? Twelve-year-old Silicon Graphics Inc., the hottest and most successful company in the business. I was there that day covering the event, met the POTUS and was impressed at the power and influence of SGI on a world stage.

Much Has Changed in a Mere Generation

My, how things have changed.

In a tech deal Aug. 10 that didn't cause nearly as much talk as Donald Trump's daily controversial campaign remarks, Hewlett Packard Enterprise announced that it is buying SGI for $275 million in a bid to grow its capabilities in data analytics, high-performance computing and the cloud. HPE will add a number of much-needed new customers to its roster of users. It also will bolster its workstation lineup that's already being used by studios such as DreamWorks for making high-end CGI (computer-generated imaging) movies.

However, those who knew SGI way back when had to be shaking their heads when they heard the news. The sum of $275 million for an IT company—especially for one with a longtime international reputation and a lot of very sophisticated IP—is now basically equal in value to a golden parachute for a departing CEO or board chairman.

That pile of intellectual property includes a lot of the innards of Google Maps, for example. Much of that IP was created by people at SGI who have since migrated to Google. The long-distance cameras designed for use in satellites were astonishing; I personally had a demonstration shown to me several years ago.

Secretive three-letter federal agencies have been buying SGI imaging software and photography equipment for years and using it for some very interesting international government projects that we can't talk about in public, or else we might get a scary visit by men in black suits.

Sale Price an Embarrassment

The announced sale price of $275 million is embarrassing, even though the company filed for bankruptcy in 2009 and had many of its assets acquired by Rackable. Acquisition companies now commonly spend a billion and more for startups that have merely one app. Look up WhatsApp, Waze, Instagram and a couple dozen other examples if you don't believe it.

SGI used to be Google. Ironically, Google, which used to be SGI's tenant, now owns SGI's sprawling former campus—and a lot more additional office space—in east Mountain View, Calif., next door to what is now Moffett Field Federal Air Base, where Clinton and Gore once flew in to say hi to SGI CEO Ed McCracken.

SGI was the flagship of the IT industry in the 1980s and '90s, along with others that included Sun Microsystems, DEC and Compaq. It could seemingly do no wrong—until innovation slid underneath and pulled the rug out from under it.

SGI's then-super-powerful, $40,000 workstations were used by Hollywood studios such as Universal and Sony Pictures to create 3D-like videographics for blockbuster films such as "Jurassic Park," "Twister," "Jerry Maguire," "Lost in Space," "Men in Black" and a list of others. NASA, the FBI, the CIA and large research institutions bought specialized software and SGI's Iris and Crimson workstations to get heavy analytics-type computing jobs completed.

SGI Now Only a Skeleton of Its Former Self

Now SGI's skeleton is housed in a nondescript, '80-era corporate building on the fringes of Fremont, Calif., and remaining staff will probably be moved into an obscure corner of HPE's Palo Alto campus. This build-down from the high-rent district is the direct result of a downturn that began when Intel and Microsoft created Wintel servers and desktop PCs in the early '90s and never looked back.

Within a decade, the lighter, faster, cheaper Wintel machines and desktop workstations had undercut the big, heavy SGI machines, and the market shifted irrevocably away from the established vendor. SGI was left with good IP but fewer and fewer customers.

SGI's problem was that it couldn't look forward and make adjustments, being far too invested in its powerful but pricey and proprietary workstations that only deep-pockets companies could afford. Sun Microsystems, founded one year after SGI in 1982, faced the same conundrum (overly expensive, proprietary workstations and servers) before it floundered and was bought by Oracle in January 2010 for $7.4 billion. That, in looking back, turned out to be a pretty good exit.

Lessons Learned?

What's the lesson SGI teaches us? There are more than one, certainly, but the main thought has to be this: No matter how healthy you believe your business is, you must continue to operate it as though your top competitor is gaining on you. You also must continue to look for new markets for your IP, and you must always look for innovative ideas—not only from within the house, but outside as well.

And you must never, ever rest on your past accomplishments. Celebrate them, yes, but you must keep moving ahead into new territory.

Question: Can Google, one of the world's most powerful and successful companies at the moment, be displaced by another company years from now, like its predecessor?

Answer: If it learns the lesson from its former landlord, no. If it doesn't, history certainly can—and will—repeat itself.

Editor's Note: This story was corrected 8/15 to replace "Rackspace" with "Rackable."

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...