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SGI chief wants to start over

CEO Ed McCracken says Silicon Graphics is ready to reinvent itself.

Silicon Graphics (SGI) is ready to start over, changing the way it makes workstations as well as delving into network servers and supercomputers.

Earlier this week, the company announced a major restructuring effort to reorganize its business and executive team, an announcement that included the resignation of its chief financial officer Stanley Meresman. The company is being forced to realign its priorities as NT becomes an increasingly popular platform and allows other companies to enter its traditional markets.

The reorganization may also help the company on Wall Street. After two quarters of red ink, the company recently reported a small profit. Still, the results weren't up to par with analyst expectations. The results combined with a strong U.S. dollar and weakness in parts of Europe and Asia sunk the company's stock to its 52-week low.

CNET's NEWS.COM talked to Chairman and CEO Edward McCracken about the company's three new operating units and its efforts to focus on its core businesses and growth markets.

NEWS.COM: Compaq, Dell, Gateway, IBM, HP, and Micron now have Intel-based workstation divisions that build both inexpensive Windows NT workstations and increasingly powerful systems. How did that new competition impact your decision to reorganize?
McCracken: What has happened with our strategy and our business

McCracken on workstations
has been happening for some time. So this idea of three businesses: network hubs, supercomputers, and creative workstations has been in the [making] for an awful long time. It is just recently that our network hub business has gotten so large that we would classify it as one of our three major business. So [part of the reorganization] is probably more associated with growth in that business than any competition that we are having in workstations.

We're very committed to being a long-term supplier of engineering workstations for the engineers and scientists and creative artist professionals. And whether those be NT-based systems or Unix-based systems, we really don't care a lot in the long term. We think we can satisfy those needs best with high-performance Unix systems, and that business is going to grow over the next few years. We're interested in the automotive industry, the aerospace industry, and the entertainment community, and we're committed to being a long-term supplier of engineering workstations to those people.

NEWS.COM: The NT market is growing rapidly, what are your plans for countering or moving into that market?
McCracken: We don't define it as a NT market, NT is just one technique for getting to a market, just like we don't say there is a Unix market. We define an engineering workstation market, which today is mostly Unix, but tomorrow will have some NT systems in it as well. Our systems are Unix today, but we are not religious about it.

NEWS.COM: One analyst has questioned SGI's ability to capture a significant portion of the commercial marketplace for high-performance machines. Do you have a plan to address that?
McCracken: We're interested in capturing the new commercial

McCracken on new commercial markets
markets. The old commercial markets are pretty well served by IBM, Digital, HP, Sun, and Compaq perhaps, but the new commercial markets are primary telecommunications-orientated and network-orientated [and] associated with very large databases, and that is a market that our scalable systems provide unusual competitive advantage.

The telecommunications industry throughout the world will be investing hundreds of billions of dollars in improving their infrastructure over the next ten years?[It] will be the world's No. 1 growth market, and the fact that our systems are unusually suited for the network hubs for the new, more network-orientated commercial systems is [an indication] that the market is just beginning.

NEWS.COM: About a year ago, SGI was a very vocal proponent of Java. But the company has been quiet about that of late. Does SGI support Sun's efforts to submit Java to ISO for standardization?

McCracken on standardization of Java
McCracken: We're very supportive of the Java activities. Our systems are used extensively in Java environments. We feel like the idea of Java is a good one and Java runs on our systems as well as anything else in the world. We use that technology and our customers use that technology?It is an important technology for us. And the more open it is the better we'll like it. I think anything that turns Java into more of a standard thing over time, so that it doesn't get warped by Microsoft, is good.

NEWS.COM: During the last quarter, your sales were good, but your production couldn't meet the demand. How will this problem be resolved?
McCracken: Fortunately the O-series product line is now shipping in volume throughout all of its price points, so we think we are on the other end of that curve. We're seeing a lot of momentum in both manufacturing and in the marketplace. We've reorganized to address our processes there, and I think we're coming out the other end of that. We have to prove that to financial communities, of course, and we intend to do that.

Bob Ewald [former head of Cray Supercomputers; now director of SGI's newly formed computer systems unit] is a great leader and good manager. Cray has been known for pretty good processes: for being able to plan their plan and meet their plan. But, there is no question that Bob has a big challenge. Silicon Graphics' research and development and manufacturing is a big operation, and it is probably the most technically sophisticated engineering lab in the world, and it is a big challenge for Bob, but I think he is up to it.

NEWS.COM: What are your goals for the rest of the year?
McCracken: First thing we are doing is finishing up the transition to the O-series product line. It is a brand new product line from top to bottom. We are working to get the new products well-marketed.

We are also working hard to improve our relationships with customers and are out to target markets and deepen those relationships as we work to install these complex networks of systems across our product line. We are also working to increase the process orientation at Silicon Graphics--the ability to implement repeatable processes over time. We have been a very innovative company, but we need to be a little more predictable. Those things will help us increase our momentum in the marketplace.