Analysts: SGI must meet Wintel challenge to recover

Changes announced yesterday at Silicon Graphics, including the departure of chairman and CEO Ed McCracken, will reassure Wall Street that the company is serious about its recovery efforts. But a deeper restructuring must take place if SGI is to recoup the financial losses it has suffered in recent quarters, analysts agree. SGI says it will cut 700 to 1000 jobs from its worldwide workforce as part of an effort to lower operating expenses. McCracken, a 13-year veteran of SGI, said he will leave the company as soon as a successor can be found, along with Gary Lauer, executive vice president of worldwide field operations.

Changes announced yesterday at Silicon Graphics, including the departure of chairman and CEO Ed McCracken, will reassure Wall Street that the company is serious about its recovery efforts. But a deeper restructuring must take place if SGI is to recoup the financial losses it has suffered in recent quarters, analysts agree.

SGI said it will cut 700 to 1,000 jobs from its worldwide workforce as part of an effort to lower operating expenses. And confirming rumors circulating since last week, McCracken, a 13-year veteran of SGI, said he will leave the company as soon as a successor can be found. Gary Lauer, executive vice president of worldwide field operations, also said he will leave SGI.

"The resignations are really sacrificial lambs," says Peter ffoulkes, an analyst with Dataquest. "They're doing the decent thing to show Wall Street SGI is not going to be half-hearted about what it needs to do."

SGI is struggling to adapt to a changing market in which Wintel systems are eating into its Unix workstation niche from the low end up, analysts say.

"They have a problem because the Wintel architecture is getting stronger and it's getting better, and SGI is being pushed into a very high-end niche that gets smaller and smaller over time. There are some very powerful graphics platforms running on Wintel today," says Dave Jones, a financial analyst at California Technology Stock Letter.

To get back on a growth spree akin to the one it enjoyed in 1995, when SGI led the market with its high-end workstations, SGI should hurry production of its own Intel-based machines and meet the Wintel challenge head on, ffoulkes says.

In addition, analysts said the company needs to recognize that the market for high-end Unix workstations is moving away from the technical and scientific communities and towards the commercial enterprise space.

SGI has recognised these changes and in board meetings this week forged a plan to adjust its business model accordingly, said spokesman John Thompson.

SGI has already announced it will build Intel-based workstations that run the Microsoft operating system, and those machines are expected to begin shipping after June next year, Thompson said.

"The Unix market is growing a little, while the engineering and technical workstation growth areas are in NT," Thompson says. "We understand there is a need to be in both Unix and NT and we'll be bringing more focus to that area."

SGI also will focus its sales and marketing efforts more on the commercial arena, targeting large enterprises that move large amounts of data across servers, Thompson says.

Daniel Kunstler, principal analyst at J. P. Morgan Securities, agrees that "there is life after workstations" for SGI, if the company broadens its server business to focus on the enterprise, rather than just the scientific, technology and entertainment industries.

"Their server side has the technology to save them, but they need to add a distribution channel to their offerings and strike some partnerships with the ISV community that caters to the commercial marketplace," says Jerry Sheridan, director and principal analyst at Dataquest. "And they need some sales people conversant in the commercial space."

Ffoulkes agresd that SGI has the server technology to carry it in the commercial arena, "but it's a challenge because it takes a long time to gain the confidence of the corporate MIS dept."

SGI made an error three years ago when it neglected to follow the example of fellow Unix vendor Sun Microsystems. and move into the Internet market, according to a statement released by Zona Research.

While Sun was building on its mantra of "the network is the computer," SGI put its faith in "the glitz and glamour of VRML and high-end graphics ... and missed the fact there was a real opportunity in the .. network itself," Zona says.

But SGI "is not going to become an online transaction-processing house anytime soon," Thompson says.

"SGI has had problems with its business plan, but over the past six months it has been seeing those problems and trying to put them right," ffoulkes says. "The question is, do they have enough time and stamina to do it?"

SGI, based in Mountain View, California, can be reached on the Web at http://www.sgi.com/.

Join the newsletter!

Error: Please check your email address.
Show Comments

Market Place

[]