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New SGI CEO emphasizes stability

The company took pains to reassure observers today that the unexpected resignation of CEO Rick Belluzzo won't alter its recovery strategy.

SGI took pains to reassure observers today that the company's unexpected CEO change won't alter its recovery strategy.

In a move the graphics and server company said took it by surprise, Rick Belluzzo resigned this afternoon as chairman and chief executive. SGI board member Bob Bishop took Belluzzo's place today and predicted a return to an SGI more like the company five years ago.

The CEO switch is one more change for a company that's in the midst of a protracted effort to return to its heyday of profitability and glory. Belluzzo's departure comes less than two weeks after he announced a major change to SGI's strategy, including more massive layoffs, that sent the company stock price down about 25 percent.

But amid the change, Bishop emphasized that he won't alter the company's strategy: Using the Linux operating system on Intel's future IA-64 chips to power high-end servers, graphics-intensive computers, and the shipment of video and audio across the Internet.

"I am fully supportive of the strategy," Bishop said in a conference call today. "I have been kept abreast as a member. ...The quality [of execution] will be now key to our future."

Bishop's appointment came in the blink of an eye compared to the months-long CEO searches that Compaq and Hewlett-Packard just completed.

"We could not afford an extended period of interim leadership, and we happened to have a [qualified] person on our board already," said Bill Kelly, a senior vice president at SGI. "I heard about this job only in the last 48 hours," added Bishop.

The CEO switch sent shock waves through SGI as well as the computing industry.

"I don't think anybody expected this," said a surprised Phil Rueppel, an analyst with Deutsche Bank Alex. Brown.

SGI has been feeling the pulse of its other top managers, including chief financial officer Steve Gomo. "We are not anticipating any further executive changes at this time," Bishop said.

The company also isn't changing its guidance to financial analysts about being "profitable by the December quarter," Kelly said. The company experienced strong demand for its Unix servers in its last quarter, leading it to its profitable quarter after seven in the red.

"He's got his work cut out for him," Aberdeen Group analyst Shawn Willett said of Bishop's task. "They have to think of where they add value to the market: graphics, the Internet, and broadband, not in the low-end NT workstation."

Belluzzo's departure is a mixed bag for SGI, Rueppel said. On the one hand, "He hasn't lived up to expectations. He is certainly getting out of there before he's done much of anything." On the other hand, Belluzzo brought "a lot of experience and credibility to SGI."

If the strategy was sound, why did Belluzzo leave?
The timing of Belluzzo's departure will certainly raise questions about SGI's future, Rueppel said. The company had already launched upon a strategic initiative which seemed to have support among Wall Street analysts and company executives. In these circumstances, one would expect the CEO to remain, especially considering the large compensation package that SGI gave Belluzzo when he came to company in 1998.

Observers, therefore, will want to discover whether there are internal issues at SGI that alarmed Belluzzo, or whether the company was dissatisfied with his performance.

"There will be questions posed over whether there were business issues as to why he left," predicted Rueppel.

SGI's Kelly said the company didn't know of Belluzzo's plan to depart when it announced its updated recovery plan August 10. "This was Rick's decision. It was a surprise to the company."

SGI not looking to be acquired
Bishop denied rumors that SGI's changes were a way to make it a more appealing acquisition target for other companies. "We are not planning to dress the company up on a sale basis," Bishop said. "I have taken the position on the basis that this is a long-term position and that we will in fact recover some of our former glory in the marketplace. That's the entire focus I have here."

Focusing on high-end servers, visual computing, and streaming content isn't the only part of the company's August 10 restructuring. SGI has now almost completely backed out of its plan to embrace Microsoft's Windows NT operating system and its 1996 acquisition of Cray Research. "We made a strategic decision to divest ourselves of the NT group," Bishop said.

The company is looking for a distribution partner for the NT group and its chief product, the Visual Workstation. The company plans to sell off its Cray Research group. In addition, it will spin off its MediaBase streaming media software and engineers into a new company in which SGI will hold a minority interest.

"I think if we look back five years ago, we're returning to our starting point," said Bishop. Only five years ago, "we didn't have the choice of leveraging ourselves with the Internet or leveraging ourselves with Linux or leveraging ourselves with Merced or leveraging ourselves with Nvidia."

Bishop, 56, joined SGI in 1986, headed the company's marketing through 1995, and has been a board member since 1993.

The board wanted someone "who brings extensive experience and credibility," Kelly said. "He built our international field organization from scratch in 1986 to, in a few years, half of our revenues. He understands the company, what it takes to restore growth."

News.com's Michael Kanellos contributed to this report.