SGI Overlooked Key Trends
The company also didnt foresee, as numerous other companies did in the late 90s, the advent of distributed computing power, or grid systems. Companies such as Oracle Corp., IBM, HP, Cisco Systems and Sun were early providers of those enterprise products and are now well-positioned for growth in that sector.
By 1997, SGI—hard hit by tough new competition, pricing pressure, and production and image problems, looked for a key partner to help it through the storm. SGI transitioned from making old-style MIPS-based machines to those with Intel processors, but the process was slow and costly. Delays in shipments of new chips—not SGIs fault, by any means—and in the transformation of production cycles turned out to be killers.
An alliance to collaborate on a new graphics architecture with one of its major competitors, Microsoft Corp., turned out to be a disappointment; the merging of SGIs signature OpenGL and Scene Graph graphics with Microsofts DirectX into a new entity, Fahrenheit, didnt work out and was soon dissolved.
When Linux began catching enterprise attention in the late 90s, Hollywood computer-animation studios realized they could do similar kind of high-end work on much cheaper computers. They began phasing out of SGI machines with expensive service contracts and licenses, moving to Linux "farms" with dramatically lower overhead costs.
Within three years, several of SGIs major customers—including Pixar, Industrial Light & Magic, and DreamWorks—were gone. The company began to downsize. SGI sold the Cray supercomputer portion of the company in 2000.
The downsizing continues.
"I hate using the word, but there was some arrogance of a kind," Estes said. "We had—and still have—great products, and we knew it. Its just that there was a limited market for what we built. We simply couldnt turn the ship around quickly enough to compete with the new-generation PCs."
When the downslide began, SGI attempted to move into other markets, such as Linux-based servers, storage and components. Success for its foray into storage and components remains to be seen. Its server business still has long way to go to catch up to its competitors such as IBM, BEA, Sun, HP and Microsoft.
"We had to learn to pick our battles," Estes said, "and use our core competence in ways that we know can succeed in the marketplace. We think we have some real value propositions in the storage area, for example."