Volume 3, Number 5 -- February 7, 2006

Struggling SGI Replaces Chairman, Stirs Up Some Midrange Biz

Published: February 7, 2006

by Timothy Prickett Morgan

Itanium-Linux supercomputer maker Silicon Graphics continues to struggle to sell its technically good Altix Linux-based shared memory clustered servers to HPC customers. Last week, SGI announced sales of $144 million, down 35 percent, for its fiscal second quarter ended December 31. Product revenues dropped 41 percent, and additional sales to SGI Japan (which is reckoned separately for some reason) were down by more than a factor of five to $4.8 million. Services revenues during the quarter were down 9 percent. SGI has cut costs significantly, but still posted an operating loss of just under $28 million and a net loss after taxes of $30.5 million.

Bob Bishop, who has been chairman, CEO, and president for the past six years and who has been at SGI for two decades, stepped down from those roles and was replaced by Dennis McKenna, who was previously CEO at SCP Global Technologies, a supplier of semiconductor capital equipment. Prior to that, McKenna was chairman and CEO of ChipPAC, which he took through a leveraged buyout and then an initial public offering in 2000 and then merged in a $1.6 billion deal with STATS Singapore. McKenna has worked at chip makers Hyundai Electronics and Oki Semiconductor, and started his career in technology 20 years ago at mainframe maker Burroughs, long since part of Unisys.

While SGI is pitching McKenna as a turnaround specialist, it might be possible that SGI is looking to sell itself to some other Itanium player. The most obvious possible buyer is Hewlett-Packard, which is an Itanium enthusiast and which might have interesting uses for the NUMAflex architecture and its shared memory architecture. With a market capitalization of around $97 million, SGI would be a very inexpensive acquisition considering the potential value of its technology.

In the meantime, SGI is focusing on selling its Altix systems. This week, the company announced that Wilfrid Laurier University had acquired a 128-processor Altix machine to add to a shared grid called SHARC Net that is built and operated by 14 different universities in Ontario, Canada. According to Michael Brown, SGI's market segment manager, the SHARC Net grid has a wide variety of Linux clusters, and Wilfrid Laurier had been testing a smaller Altix machine to assess the benefits of bringing a shared memory system to the grid. Having seen the benefits, the university decided to invest in a 768 gigaflops Altix 3700 machine with 256 GB of shared memory. The grid will eventually automatically divert supercomputing jobs with large datasets to the Altix cluster, since the shared memory architecture allows it to run such jobs more efficiently than Linux clusters running MPI links between machines. SGI is also touting a win at the University of Missouri's Bioinformatics Consortium, which just bought a 64-processor Altix machine with 128 GB of shared memory and an 8 TB InfiniteStorage disk array to match it. The university had Xeon-based Linux clusters and custom-built FPGA boxes for running matches of DNA snippets against a genomics database.

Brown says that while SGI is obviously having a tough time, it is important to realize that not every deal in the HPC market is about tens or hundreds of teraflops. "Researchers want to get back to doing science and less time doing computer science, and creating applications that run on MPI systems is harder than on a shared memory system," explained Brown. "More and more researchers are installing mixed systems and they realize that Linux clusters do not solve all of their problems. A mixed environment is what we see going forward."

SGI is also counting on higher attach rates for its InfiniteStorage arrays and their clustered file system, XFS. On Altix machines with more than 32 Itanium processors, customers often come back and do a second deal to get InfiniteStorage arrays. Brown estimates that SGI has an attach rate of between 60 to 70 percent for its own storage on the bigger Altix systems. This is a very good rate. And finally, if Intel could only get the "Montecito" dual-core Itanium processor out the door in mid-year as promised, SGI could double the processing performance inside its Altix machines.

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Editor: Timothy Prickett Morgan
Contributing Editors: Dan Burger, Joe Hertvik, Kevin Vandever,
Shannon O'Donnell, Victor Rozek, Hesh Wiener, Alex Woodie
Publisher and Advertising Director: Jenny Thomas
Advertising Sales Representative: Kim Reed
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