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SGI to lay off 1,000 amid losses

The high-end computer maker posts a net loss of $141 million and announces it will lay off 1,000 employees as part of a plan to break even financially in a few months.

High-end computer maker SGI posted a net loss of $141 million Friday and announced it would lay off 1,000 employees as part of a plan to break even financially in a few months.

The layoffs, which affected 15 percent of the Mountain View, Calif., company's work force, are part of business changes that "will enable us to break even at the current revenue level as we enter the next fiscal year," which begins in July, Chief Executive Bob Bishop said in a statement. Job cuts were chiefly in manufacturing, administrative and support staff, he added in an interview.

The company reported a net loss of $141 million, or 74 cents a share, for the third quarter of fiscal 2001, compared with a net loss of $18 million for the same quarter last year.

Analysts surveyed by First Call expected a loss of 25 cents a share, a figure that is adjusted to exclude one-time charges and other factors. On that basis, SGI beat expectations with net income of 18 cents per share, Bishop said.

Revenue was $510 million, an 11 percent decrease from the year-ago quarter's $564 million. However, adjusting for SGI's sale of its Cray supercomputer division, revenue actually increased 8 percent, Bishop said.

"We actually had a good operating quarter," Bishop said. "We had a loss, but it was half the loss in terms of operating net loss that we expected."

The company's net operating loss was $47 million for the quarter, which ended March 31. On top of that was an $83 million write-off for a venture investment in Wamnet, which specializes in sending streams of video information and handling other computing tasks for customers.

In a Securities and Exchange Commission filing Monday, Wamnet said that as of Dec. 31, 2000, it has accumulated $476 million in debt, expects to lose money for the foreseeable future and doesn't have enough funding available to cover operations for the next 12 months. "These factors raise substantial doubt about (the company's) ability to continue as a going concern," according to the statement.

Bishop said SGI's gross margin, a key measurement of profitability, increased from 30 percent to 36 percent as the company resolved a shortage of the MIPS R14000 chips that power its computers. The shortage hobbled sales in the second fiscal quarter. NEC builds the chips, Bishop said.

SGI, which has backed off from a plan to legally change its name from Silicon Graphics, once was a high-end computing powerhouse whose machines were used to create special effects for movies such as "Jurassic Park." The company, which analysts have said could have been as powerful as Sun Microsystems, has been struggling with reorganizations, failed products and changing strategies.

Now, SGI's troubles are compounded by the worsening economic climate that has hit Sun, Hewlett-Packard and other competitors.

SGI shares closed regular trading Friday down 99 cents, or 25 percent, to $3.01.

About 40 percent of SGI's revenue in the quarter came from its high-end product, the Origin 3000 computer and its close relative, the Onyx 3000 system for viewing complex graphics. The systems, introduced in July, can accommodate as many as 512 processors. SGI sold 6 of these systems in the most recent quarter, Bishop said.

Improvements are coming to the Origin line, Bishop said. Current 500MHz chips will be replaced with 600MHz models by January. After that, an 800MHz model will be released, and a 1GHz model is scheduled to arrive within the next two years, Bishop said.

As these changes are happening, the size of the features on the chip will be shrunk from the current 0.18 microns to 0.15, then 0.13, then 0.11 microns, he said.

Shrinking to a smaller manufacturing process will allow more room for new features, Bishop said. In the future, SGI plans to squeeze multiple CPUs onto the same chip, add graphics abilities to the chip and build in high-speed networking components essential to SGI's computers.