In the second phase of a drastic turnaround strategy announced 18 months ago, Silicon Graphics is to narrow its focus by adopting Linux as its exclusive operating system. It also will spin off its Windows NT workstation unit and its Cray vector supercomputer division into separate businesses that will be co-managed or sold.
The company hopes to save $US300 million annually with the reorganisation, which will result in the elimination of about 1,500 jobs.
SGI will continue to support its Origin servers for high-performance computing. Revenue for that line grew 30% last quarter over the year-earlier period. It will also continue to focus on its less profitable visual computing business but will sell to the lower end of the market through its alliance with NVidia.
The moves come as SGI tries to sustain profitability after more than two years of unimpressive revenue growth. Last month, the company reported its first profitable quarter in 18 months, with $157.8 million in profit. Most of the gains were in its server business.
The Mountain View, California company will also enter the broadband Internet server market, CEO Rick Belluzzo said. Broadband content “will force a complete rebuilding of the infrastructure of the Net,” he said. “This represents an opportunity for SGI.” To handle broadband, servers will have to be upgraded by up to 10 times their current capacity.
SGI plans to phase out its Irix operating system. RISC processors will remain part of SGI’s architecture “where we have competitive advantage” such as in the entertainment sector, Belluzzo said.
Some observers said planting a flag on Linux was one of the few turnaround choices the company had. “They’ve tried NT, but the cost vs. volume doesn’t work for them. The software development support for Irix is slipping very seriously. So they go to Linux,” said Daniel Kunstler, an analyst at J.P. Morgan Securities Inc. in San Francisco.
Even so, SGI said it has reached a preliminary understanding with another computer systems company to extend its Windows NT product line.