SGI Emerges from Bankruptcy

With new management, new products and a new business model in place, the once dominant hardware maker now must figure out how to create a sustainable business.

SGI, the Silicon Valley pioneer whose tailspin over the last few years landed it in bankruptcy in May, is reorganized and free of Chapter 11.

Now the question is whether the Mountain View, Calif., company—with a new management team and board of directors, new business model, and new funding—can create a sustainable and successful business.

Silicon Graphics officials announced Oct. 17 that it had emerged from Chapter 11.

"Today we debut the new SGI, an efficient and fully recapitalized company armed with a new, market-centric business model and empowered by a rekindled commitment to solving the problems of customers in a targeted range of market," SGI CEO Dennis McKenna said in a prepared statement.

McKenna was appointed to the post in January with the mission of determining the future of the company, which at one time was a major supplier of systems in the high-performance computing space.

However, SGI was unable to keep up as those workloads shifted from expensive, high-end proprietary systems to clusters of cheaper x86 servers powered by processors from Advanced Micro Devices and Intel.

By the time it declared bankruptcy in May, SGI was looking at $250 million in debts.

Among the moves SGI has made since McKenna took over was shelving its legacy high-end MIPS/Irix hardware—though it will support those systems through 2013—in favor of its Altix line, which runs on Intels Itanium and Xeon processors.

SGI also laid off about 12 percent of its workforce—about 250 people—and consolidated its server and visualization product lines.

The company also is aggressively marketing new blade servers, the Altix 450 and 470 systems, and storage products, including the InfiniteStorage NAS (network-attached storage) and SAN (storage area network) lines.

The new products and services are aimed at an HPC field that spends more than $80 billion on technology each year, according to SGI. At the same time, the company is also making a stronger push into the enterprise market.

SGI also is exiting bankruptcy with $115 million in financing, which includes an $85 million loan and a $30 million revolving credit line.

Clay Ryder, an analyst with the Sageza Group, in Union City, Calif., said SGI needs to be clear about what market segments its going after.

/zimages/1/28571.gifClick here to read about SGIs bankruptcy filing.

"Im just not sure of the niche market SGI is chasing right now," Ryder said. "When you are in bankruptcy, the first step is to get out. The next step is figuring out where you go now."

The could prove to be a significant challenge, Ryder said. SGI cant continue to rely on the HPC market, given that doing so in the past had resulted in the Chapter 11 filing.

At the same time, pushing systems running on Xeon and Itanium puts SGI into a competitive stance with much larger and more financially strong companies, like Hewlett-Packard, Ryder said.

Whatever officials there do, they are going to be under a lot of pressure from debt holders to post profits quickly, he said.

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