SGI after new look, but is it too late?

By Chris Barton

Facing threats on both sides of the midrange server and workstation market - from Linux and Windows NT/Intel - SGI has revved up its strategy "to sustain profit and a base to grow from."

But according to Gartner Group analysts the company, formerly known as Silicon Graphics, may have left its reorganisation a little late. It intends to reduce the emphasis on supercomputers and visual workstations while touting Linux and the internet.

SGI announced a week ago that it intended to cut its workforce of 9000 by up to 1500 and had relegated its Visual Workstations and Cray vector supercomputer products to nonstrategic status and while seeking partners for both.

New Zealand general manager Peter Vanderbeke does not expect any redundancies in the local division which employs about 20 staff, but he plans to announce next month new resellers for its just-arrived NT-based servers.

The local arm has also enhanced Linux expertise among staff in response to a growing number of requests from business wanting the "open source" operating system rather than Windows NT or Unix as the basis of new computing developments.

Mr Vanderbeke says the main reason behind the growth of Linux is its performance when compared with Windows NT - especially in web server applications.

"It's becoming the operating system of the web and as the web takes off that will take Linux with it."

But SGI acknowledges the growth of NT too. In the fiscal year ended in July the company sold about 100 workstations here. Of those, 30 were its new NT-based Visual Workstation line which became available here only in January.

Starting at around $8500, the workstations use Intel processors combined with SGI's proprietary graphics hardware and represent great value for customers in the animation, scientific and computer aided design and manufacturing market. But they also erode SGI's traditional strength - the more expensive and powerful Unix workstation.

The same problem - lower unit price invading high performance turf - occurs with SGI's just-introduced NT-based servers. The SGI1400, for example, with a single Intel 500MHz Xeon processor and 256Mb of memory, starts at $16,900. A four-processor model costs $29,500.

SGI's response is to find partners for that side of its business and concentrate on its core server competence based on high-end, Numa-style Origin servers.

According to Gartner it will try to become a volume player by using Linux at the low end and midrange to complement its Irix Unix strategy in the high-performance segment.

SGI will also reposition its internet focus around broadband internet systems and further pursue business intelligence with Irix servers.

Gartner Group believes that SGI will continue to trail in acceptance among independent software vendors and in market share as consolidation in servers continues.

"The SGI reorganisation will try to exploit the old magic of SGI technology by stressing its jewels (ie, Numa, a 64-bit operating system) for Linux; however, the new paradigm of open source is fraught with uncertainties."

Despite the uncertain future some of SGI's restructuring strategy does seem to be working.

The Silicon Valley-based company reported $US54 million profit in fiscal 99 on revenue of $US2.7 billion. Sales next year are expected to reach $US3.1 billion.

The New Zealand operation had a good year too, recording about 30 per cent sales growth resulting in revenue of between $13 million and $15 million, although Mr Vanderbeke expects that to ease next year.

The New Zealand result was helped in part by three supercomputer sales - one 132-processor machine to National Institute of Water and Atmospheric Research and two 32-processor boxes to Auckland University and Peace Computing.

The company has also supplied a significant number of graphics workstations and back-end servers to Peter Jackson's film animation company, Weta Digital.