MOUNTAIN VIEW, Calif SGI announced an overhaul its operations on Tuesday (Aug. 10) that is expected to involve the layoffs of about 1,000 to 1,500 employees and save the company approximately $320 million, according to Richard E. Belluzzo, chairman and chief executive officer of SGI.
The company will spin off its Cray supercomputer division and Windows NT Visual workstation business as part of the restructuring, and will create a new group devoted to broadband Internet servers. The company will also focus on the Linux operating system and will enter partnerships involving low-end and high-end systems, Belluzzo said.
The changes will focus SGI "on business partnerships and new business priorities," Belluzzo said. The transition plan SGI announced 18 months ago to focus on high-performance computing and visual computing hadn't gone far enough to restore growth in sales and profits, he said.
Analysts expected big changes at SGI, which needed to refocus on core moneymaking businesses and dump money losers, they said. The fate of the company's Windows NT workstation business, which has struggled with disappointing sales and harsh competition since SGI launched its first NT products in January 1999, held particular interest.
SGI will spin out the NT business under a new, unnamed partner. The entity will be coupled strategically, but not financially, with SGI. Further details of this partnership will be announced in the first quarter of the new fiscal year, the company said.
Belluzzo said SGI's NT sales fell short of revenue predictions and SGI now believes there is more opportunity in the Linux market than in NT.
As for Cray, SGI will spin it out as an independent entity and is currently seeking a partner for that division. SGI does not plan to keep a financial stake in Cray.
The decision to divest Cray will better serve SGI shareholders, Belluzzo said. Cray was difficult to manage as part of SGI, which resulted in less-than-ideal execution, he said.
Asked if SGI's 1996 acquisition of Cray was a mistake, Belluzzo said that it contributed to a lack of "clarity" in the company's strategy.
Going forward, Belluzzo said SGI will focus on high-performance systems, visual computing solutions and a new broadband Internet systems group, which will provide appliance-like servers to deliver broadband content, applications and services.
The broadband Internet systems group is designed to build on SGI's brand recognition in the digital media industry and to take advantage of the demand for broadband video services in households with DSL or cable-modem Internet access. It is also expected to capitalize on the evolution of the Internet infrastructure to support high-bandwidth video, data and voice with the IP v6 protocol.
SGI's high-performance systems business will continue to be centered around the company's Origin systems line, which saw 30 percent sales growth in the June quarter, according to John R. Vrolyk, senior vice president of SGI's computer systems business unit.
SGI will continue to introduce new MIPS processors into 2002, as previously planned, Vrolyk said.
SGI's server business will include Intel's upcoming IA-64 architecture. SGI will introduce a new server architecture in nine months that will be able to support both MIPS and Intel processor architectures, the company said.
Going forward, SGI will shift its focus to the Linux operating systems for Intel-based platforms, while maintaining its investment in and support for MIPS-based systems into 2002, Vrolyk said.
The emergence of Linux as an industry standard, and the fact that Linux is better than any proprietary version of Unix, led SGI to reassess its position in the Windows NT market, Vrolyk said.
SGI will integrate Irix into the Linux environment, Belluzzo said, because the company believes it will be the "next business model change in the systems business."
The company announced several partnerships to help turnaround its business. SGI formed a relationship with Veritas Software Corp. to extend and enhance the file system and other systems software on Irix and Linux, for example. SGI will make the merged technology available via Open Source in preparation for the day when all SGI products will be migrated to Intel CPUs and Linux.
SGI will continue its graphics development, including its use of the NUMA (non-uniform memory access) architecture for its O2 and Octane systems. It will also continue to add new CPUs to the O2 and Octane lines.
Through a relationship with Nvidia Corp., SGI will provide graphics solutions for low-end systems. SGI will contribute intellectual property, technology and personnel while Nvidia will provide graphics products for SGI's use and for the broader PC market. Nvidia will use SGI intellectual property to produce chip sets and boards for low-end systems, while SGI will continue to build graphics products for Onyx2 systems.
SGI also announced a partnership with NEC Corp. involving the marketing of high-performance systems in Japan. Details of that agreement will be revealed August 19 in Tokyo, SGI said.
In addition, SGI will spin off its MediaBase media-streaming applications, engineering team and technology business, which will form a new company with venture capital backing and in which SGI will hold a minority stake.