SGI: Still Hanging Tough

News Analysis: The company marks its decade-long slide by being delisted from the NYSE. Analysts say the company missed the warning signs of commoditization. However, the company says it can be sustained by a loyal customer base and its strong tech

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MOUNTAIN VIEW, Calif.—Monday was the first day since 1986 that the stock of Silicon Graphics Inc., better known as SGI, has not been traded on the New York Stock Exchange. Its recent delisting is just the latest chapter of a long, painful story that analysts say is loaded with lessons for other companies.

However, company executives say SGIs customer base remains loyal and its technology base is strong enough to sustain it, albeit in narrow vertical markets.

SGIs stock, which closed Friday at 46 cents per share, had been selling for under $1 since last May, when the exchange notified the company that its common stock had fallen below the minimum share price standard for continued listing. The NYSEs standard requires that a companys common stock trade at a minimum average closing share price of $1 during a consecutive 30-day trading period.

SGI is now being traded on the small-cap Over the Counter (OTC) Bulletin Board.

"While SGI has been listed on the NYSE, a significant amount of our trading volume is currently executed off the NYSE. We believe there will be a seamless transition to OTC, and this change does not affect our operations. The bottom line is that we remain focused on our customers and business objectives," offered SGI spokeswoman Caroline Japic.

"At the beginning of the fiscal year, we outlined three primary objectives: refinancing for improved liquidity, significant cost reductions, and revenue generation plans. As we announced last week, we are on track with the milestones we set for ourselves in these areas, although our plans will take several quarters to be fully implemented. Specifically, we met our revenue targets for the September quarter, initiated our restructuring and cost savings plans, and on Oct. 25 announced that we had completed a new asset-based credit facility, which significantly improves our liquidity," Japic continued.

Still, SGI lost $19 million last quarter and expects to lose somewhat less this quarter. This is a company that earned $730 million in 2004 and made more than $3 billion in 1997, its peak year.

What happened? Progress, according to some.

SGIs Heyday

Ten years ago, on July 12, 1995, SGIs stock price peaked at $45.25 per share—about twice what Microsofts was selling for at the time. At the time SGI was one of the largest, most well-equipped companies in the IT business with one of the most attractive campuses anywhere. It employed about 12,000 people in locations around the world and was the darling of the motion-picture business, since its powerful workstations were fit for designing and rendering special effects and animation.

The company also sold systems in the medical imaging, military and government sectors. It still does today, but on a much smaller scale.

/zimages/4/28571.gifThe Navy enlisted SGI supercomputers and storage technology in tsunami relief work. Click here to read more.

That was then. Now, SGI still sells high-end computing platforms and components (such as shared memory systems). It has also shed about 80 percent of its staff, down to 2,200 employees. The company makes a good chunk of income from being Google Inc.s landlord. SGI leased its entire original campus to the Internet services company in 2003 for $14 million to $17 million per year and has relocated to more modest—but still impressive—accommodations a half-mile away.

Some in the industry find irony in that situation. SGI, with its proprietary workstations that used to sell for $10,000 to $40,000 apiece, has been supplanted by a newcomer that runs its Internet business largely on inexpensive Linux-run machines in huge server farms.

How did SGI nosedive so far in less than a decade? According to some analysts, vision, or lack thereof, played a large part in all of this. Others point to the advent of Linux. Virtually all say that simple bad luck was involved throughout.

"SGI essentially got pushed out of the market," Jupiter Research analyst Michael Gartenberg told Ziff Davis Internet. "It stuck to making dedicated, high-end computer workstations, when good-performing, standard PCs were coming along at much cheaper prices. For a long time the company failed to realize what was happening, and by the time it did, it was too late."

Next Page: Before the Internet, things were very different.

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...