SGI cutting up to 1,500 jobs in reorganization

The company--known for its powerful workstations that produced the graphics in movies like Jurassic Park--plans to sell its Cray supercomputer unit, which it acquired in 1996. SGI will also hand over development of its Intel-based workstations to another company and transfer many employees to the Nvidia graphics chip company, said Bill Kelly, senior vice president of corporate operations said in an interview with CNET News.com today.

"What we have here are a series of related actions that are all about realigning ourselves as a company [to focus on markets] that we think are going to grow," Kelly said. "If you take the two extreme ends [of SGI's product line]--the Visual Workstation on one end and Cray on the other--we're really going to pursue those with and through partners," Kelly said.

As previously reported, the changes are a major reworking of SGI's recovery plan, which has been under way for more than a year and a half. In recent months, SGI had been focused on moving from its custom hardware and software to more mainstream technology, but difficulties in design, distribution, manufacturing, and competition hampered the effort.

The realignment could make SGI a potential takeover target. After its reorganization, SGI will primarily be a maker of high-end servers. These companies will likely get snapped up by larger, full-service computer companies who are looking for niche technologies. Two of the five independent server makers--Sequent and Data General--were both recently acquired.

Last month, SGI reported its first profitable quarter after seven in the red, but chief executive Rick Belluzzo said the company still has work to do before it reaches long-term profitability.

In the future, SGI will focus on selling high-performance servers, in particular models designed specifically for tasks such as delivering streaming media content such as movies over high-speed, or "broadband," network connections, Kelly said. Along those lines, SGI has set up a new broadband business unit and will spin off its MediaBase streaming media software and engineers into a new company in which SGI will hold a minority interest.

Independent server makers, however, are having no easy time either. Yesterday, Data General was purchased by storage king EMC while Sequent was picked up by IBM earlier this summer. This leaves only SGI, Unisys, and NCR as major independent server companies.

The technology these companies make is attractive, both to customers and to large full-service computer makers that need to fill in their product lines. At the same time, only Unisys does not seem to be in the midst of an economic crunch or changing times, according to analysts.

"I think NCR would be a good match for a larger systems provider. That could be any of the big six or seven," James Gruener, analyst with the Aberdeen Group, said yesterday.

SGI stock dropped more than 9 percent to 14.75 on the news in midday trading.

The company has joined with another partner that will resell its Intel-based Visual Workstations as well as help design them and potentially take over some of the 100-person design team, Kelly said. The partner's name hasn't been disclosed.

SGI still intends to lead in the production of high-end systems for visualizing complex computer models, Kelly said, but has decided to do that by using other broadly available graphics chips instead of designing its own. To that end, the company has canceled work on custom chips for its "Bali" project for top-end graphics machines, laying off or transferring about a quarter of the people involved, said Drew Henry, general manager of the visual solutions business unit.

The Bali project has not been canceled, but it relies more on off-the-shelf components instead of custom-designed ones. In addition, SGI has transferred engineers from "Odyssey," its midrange graphics chip project, to Nvidia, Kelly said.

"What's happened in the graphics business is similar to what's happening in the microprocessor business," Kelly said. That is, good technology is becoming available in mainstream products. SGI's value in designing high-end graphics machines now will come from designing computers and software, he said.

Selling the Cray supercomputer unit will undo SGI's 1996 acquisition of the famed supercomputer company for $576 million. The sale makes sense, because the market for that type of supercomputer, called "vector" machines, is very different from the market where SGI is comfortable, selling computers with numerous processors, Kelly said.

"It's very different from the scalable-systems business we've been in," he said, with government customers in the defense and intelligence community.

SGI and the Cray unit will continue to work together, though, as both companies' next-generation products are based on the same architecture, Kelly said. SGI's Steve Oberlin, currently head of engineering for the servers and supercomputers business unit, will lead Cray, and the company will continue to develop its SV2 computer. The Cray computers accounted for less than 10 percent of SGI's income.

SGI will announce a series of partnership deals to help them reach bigger markets. First on the list is a deal with NEC, which will sell SGI servers in Japan, Kelly said. "It's the first installment in a series of partnerships to extend our distribution reach," he said.