New workstations central to SGI survival

The new models, the first in SGI's revamped workstation strategy, are a key part of SGI's hopes to recover from its financial malaise and return to its earlier days of graphics glory. But the Mountain View, Calif. firm, famous for the technology behind the visual effects in films ranging from "Jurassic Park" to "South Park," has a long way to go.

SGI has been in the midst of years of restructuring, most recently culminating in a delayed new CPU and the resignation of two chief financial officers in five months. Betsy Rafael was named CFO in January, replacing Steve Gomo, but now she too has departed, the company said in a Securities and Exchange Commission filing today. In addition, Beau Vrolyk, senior vice president of SGI's hardware and software products, has left the company.

More modest hardware designs are part of the company's recovery plan. The new 230, 330 and 550 models use a less expensive and much more conventional graphics subsystem than the customized designs of their predecessors, the Visual Workstation 320 and 540. The new machines either come with Windows NT or Red Hat's version of Linux.

The workstation market is a tough one: It's not that large, and heavy-hitting competitors are muscling their way in. Dell is making inroads into the Windows market, while Sun Microsystems is trying spend some of its profits from server sales to eat away at SGI's Unix workstation market as well.

The earlier 320 and 540 models were the first SGI machines that used Microsoft Windows instead of SGI's own Irix version of the Unix operating system. But the delayed products were afflicted with manufacturing and sales problems, and SGI couldn't even hand off the product line to another company as it had hoped.

In the nine months ended March 31, SGI had spent $45 million writing off inventory and canceling contracts for the earlier 320 and 540 models, the company said in an SEC filing.

SGI is in the middle of a years-long shift of its products to Intel chips and the Linux operating system. The new workstations support SGI's OpenGL graphics standard, a key requirement for serious graphics software such as that used to design cars.

The new models use a new graphics subsystem called VPro, which is based on chips from NVidia, a graphics company that absorbed graphics chip designers from SGI during a reorganization last August. The VPro graphics cards, which come with either 32MB or 64MB of double data rate memory, plug into an AGP 4X graphics slot.

The VPro system can draw as many as 17 million triangles per second, SGI said.

Later this quarter, SGI will announce a new VPro graphics system for its Unix workstations based on SGI's own technology, the company said.

Though SGI is curtailing its Unix workstation development, it will introduce new products. "We are managing a long-term decline in our Unix workstation business by reducing our overall investment in this product line while continuing to introduce new product generations based on higher performance MIPS microprocessors and late in fiscal 2000, a next-generation graphics architecture," SGI said in its SEC filing.

SGI also makes Unix servers. A new design will be released this summer, "the anticipation of which could adversely affect revenue in the fourth quarter of fiscal 2000," the company said in its filing today.

SGI warned that all the transitions at the company, while part of a long-term plan to return to profitability, "have created uncertainty among employees, customers and partners, which have negatively affected operations to date during fiscal 2000."

The climate at SGI is making the difficult Silicon Valley hiring situation worse. "The uncertainties surrounding SGI's business prospects have increased the challenges of retaining world-class talent, and we are currently experiencing significant rates of attrition, particularly in Mountain View, Calif. and in certain functions, including at the senior executive level and among our technical personnel," the company said in the filing.