SGI Opens Chapter 11

Filing may resolve SGI's financial woes, but there may be predators circling overhead

May 9, 2006

4 Min Read
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Struggling Silicon Graphics (SGI) today filed for bankruptcy protection in an attempt to clear debts of $250 million, although there is now speculation that the move could make the high-performance computing specialist prime acquisition bait. (See SGI Files Chapter 11.)

"It makes them more appealing as an acquisition, because then you don't have to deal with all that debt," says Tony Asaro, senior analyst at The Enterprise Strategy Group, adding that the vendor's "huge" customer base is a major selling point. (See SGI Powers WHOI, SGI Creates Weather Models, Buffalo Cluster's a Grid Cornerstone, NSWC Uses SGI , and NRL Purchases SGI Kit.)

Certainly, M&A is in the air, with SGI's rival ADIC snapped up by Quantum for a whopping $770 million last week and SGI itself recently spinning off its European broadcast division. (See Quantum Takes Tape Rival ADIC, Quantum Buys ADIC, and SGI Moves Euro Operations.) Sun, for its part, has already bought some of the assets of the Cray Business Systems division of Cray Research, which was itself a subsidiary of SGI.

"All of the big two- or three-letter companies could be interested," says an IT manager and SGI customer at a northeastern U.S. university, who asked not to be named, adding that the vendor's shared memory and visualization technology could prompt interest from a number of quarters.

The exec, however, tells Byte and Switch that, in the short term, he is keen to ensure that his current levels of support from SGI will continue. "I certainly hope that they continue to take care of their current customers while they are reorganizing," he says. "We will have to wait and see."He nonetheless welcomes the vendor's decision to file for Chapter 11. "I think it's a really positive move for SGI -- It really gives them the opportunity to regroup and figure out their strategies and game plan."

Asaro agrees: "It's a sober but pragmatic move to make -- they have got a ton of customers out there and great technology. Nobody wants to see a company like that go out of business. It hurts everybody in the end, except for their competitors."

SGI has certainly cranked up its storage story over recent months, unveiling its new InfiniteStorage 6700 and InfiniteStorage 10000 systems, as well as pushing the benefits of InfiniBand and 4-Gbit/s technology to the masses. (See SGI Delivers InfiniteStorage, SGI Sets New Standard, SGI Connects Servers, Storage, and SGI Pumps Up 4-Gbit/s SAN.)

But in the background, SGI is still in the throes of a major restructuring effort as it attempts to get back to profitability. In March, for example, the firm announced that 250 jobs, totaling 12 percent of its workforce, would be lost as part of this push. (See SGI CEO Enacts Changes and SGI CEO Outlines Roadmap.)

In a statement this morning, Dennis McKenna, who took over as SGI CEO from Robert Bishop in January, sought to reassure users. (See SGI Names McKenna CEO.) "We want to assure our customers, our employees, and our communities that SGI is operating business as usual," he said. The reorganization, according to the vendor, is being planned with no disruption to day-to-day customer and partner activities.It could be some time, however, before SGI is out of the woods. Today, the vendor also announced its preliminary third-quarter results, with revenues down from $159 million in the same period last year to $108 million. The vendor also suspended its annual shareholders' meeting and its quarterly conference call until further notice. (See SGI Reports Preliminary Q3.)

Last year, after widening losses and the delayed filing of the firm's 10-K, SGI was notified that its stock would no longer be traded on the New York Stock Exchange when it dropped below the minimum share price standard for continued listing. (See SGI Ends NYSE Trading, SGI Reports Q1 Results, SGI Gets $100M Credit Facility, and Silicon Graphics Delays 10-K.)

James Rogers, Senior Editor, Byte and Switch

Organizations mentioned in this article:

  • Advanced Digital Information Corp. (Nasdaq: ADIC)

  • Cray Inc. (Nasdaq: CRAY)

  • The Enterprise Strategy Group (ESG)

  • New York Stock Exchange (NYSE)

  • Quantum Corp. (NYSE: QTM)

  • SGI

  • Sun Microsystems Inc.

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