SGI sticks with desktops minus Cobalt

By MICHAEL FOREMAN

Troubled computer manufacturer SGI has ditched a plan to offload its low-margin graphics workstation business but it will cease production of the costly Cobalt proprietary co-processors.

Last August, SGI (formerly Silicon Graphics), based in Mountain View, California, said it would hive off its 320 and 540 NT-based Visual Workstations business as a joint venture with another unnamed computer manufacturer.

The move would allow SGI to concentrate on its more profitable server line.

"Across the industry the server business is the margin king," said David Frederick, SGI senior market development manager.

"Desktops are a much lower-margin business."

However, reaction from customers and a "re-examination" of the strategy led SGI to believe it would cripple its server business if it no longer offered workstations.

"The word was unanimously 'We want SGI in desktops'," Mr Frederick said.

Now SGI will continue in the workstation market, but from the first half of next year will use standard Intel processors and chipsets and it will partner with Nvidia for 3D graphics accelerator cards.

SGI will phase out its Cobalt architecture but will fully support it for the next five years.

The Cobalt co-processor was designed to eliminate processor bottlenecks in graphics applications by increasing system bandwidth.

Mr Frederick said Intel's next generation of processors and chipsets took away much of the need for Cobalt.

Also, Intel's change from 100MHz to 133MHz system bus speeds would have required SGI to develop a new chipset "and frankly, the costs of doing that were not viable."

SGI would also "lead the charge" into the nascent Linux graphics arena by supporting a version of the open-source operating system on its Intel workstations.

The company's product range remains very broad, from its high-end Onyx, Octane and O2 systems running under SGI's Irix operating system (a proprietary version of Unix), down to the NT workstations.

It is therefore exposed to strong competition from Sun and Hewlett-Packard in the Unix market, and from Compaq, Dell, Hewlett-Packard and IBM in the Windows NT market.

Last October, SGI posted a loss of $US213 million ($426 million) on a turnover of $US585 million for the first quarter of its fiscal year 2000, which ended on September 30.

These results included about $US145 million in restructuring charges, including over 1000 redundancies worldwide.

SGI's turnaround plan included a shift away from direct to dealer sales.

In the United States, the target is to achieve a 70 per cent channel/30 per cent direct-sales mix from the 50/50 present split.

Scott Morris, channel business development manager, said that in New Zealand, where four employees, including national manager Peter Vanderbeke, were made redundant, all sales were now made through the channel.

Local dealers include Designwise Systems, Eagle Technology, Digital Video Technologies and Peace Software.

SGI's revenue for fiscal 1999 was $US2.7 billion, compared with $US3.1 billion for fiscal 1998.

The company reported a profit of $US54 million over this period, but that included receipts from sales of portions of its interest in the MIPS high-end processor manufacturing business, amounting to $US169 million.

When the MIPS gain is excluded, the 1999 net loss was $US115 million.

A report published by IDC late last month predicted SGI's new strategy would allow it "to focus its energy on key customer requirements rather than on the technology issues that had derailed it for the last year."

It concluded: "This new strategy puts SGI in the best position it has been in for quite some time."