SGI pins recovery hopes on new server

The new Origin 3000 server series is the rallying cry for SGI's return to its roots: slick, high-powered computers that wow technical computing users. It took several years for the company to shed its grander ambitions, but analysts believe SGI will be more successful in this niche market than in trying to take on giants such as Sun Microsystems, IBM and Hewlett-Packard.

"The just-announced NUMAflex modular computing is poised to bring SGI back to profitability," Merrill Lynch analyst Steve Milunovich said in a report yesterday. "Our belief is that the new products will sell well," he said, predicting that $620 million in revenue for the last three months of the year will carry SGI to a net income of 2 cents per share.

The new server is the central component of SGI's turnaround strategy. A second is the hiring this week of Hal Covert, formerly of Red Hat and Adobe and now SGI's chief financial officer. A third is the acquisition of Intel workstation designs from former competitor Intergraph.

SGI, which analysts said has languished while awaiting the Origin 3000, is banking on the new design. "It feels like a start-up around here," said Jan Silverman, vice president of advanced systems marketing at SGI. "We're drastically undervalued in the market."

The new machine, code-named SN-1, has a framework that can be configured by plugging in a wide variety of modules. These "bricks" include CPUs, communications slots, graphics accelerators, hard disks and other components. And using a technology called NUMA (nonuniform memory architecture), which distributes memory into numerous small islands instead of one large block, the server can accommodate as many as 512 CPUs.

The company has a backlog of more than $100 million in orders for the new machine, SGI said Monday. The first model, using hundreds of processors, was purchased by Morgan Stanley Dean Witter, Silverman said.

"They really needed to do this," said International Data Corp. (IDC) analyst Jean Bozman. "This is an important machine for them." Bozman expects the new Origin 3000 will appeal chiefly to existing SGI customers.

Getting here hasn't been easy, though. The frequent course changes at SGI have resulted in financial difficulties, layoffs and the flight of several executives. SGI this week reported a quarterly loss that was 4 cents per share deeper than analysts expected, even after adjusting for a warning July 11, and part of the trouble stemmed from delays to the new system, the company said.

SGI has to deal with the aggressive expansion of much larger Sun Microsystems, which is funding a push into SGI's market of high-performance technical and graphics computing.

IBM and Hewlett-Packard, the other major Unix server companies, also smell blood. Like Sun, they have major new top-end servers due in coming months. HP this week announced a new line of inexpensive Unix workstations that come with new fx5 and fx10 graphics accelerators.

The Origin 3000 is the first SGI machine that will accommodate Intel's new Itanium chip, the first of a family of 64-bit CPUs called IA-64. And though IA-64 has been delayed again, SGI isn't complaining.

Silverman said the delay will allow SGI to release its Itanium version of the Origin 3000 at the same time as other manufacturers release their Itanium servers. And while SGI's machine with four Itanium chips will cost the same as other companies' four-ways, SGI's will be expandable to 16 processors, Silverman said.

However, there are some limits to the SGI Itanium machine. For one thing, it will run Linux, and Linux won't work well beyond a 16-processor configuration, Silverman said. However, he added, more processors can be used as long as they run a separate instance of the operating system.

By contrast, SGI's version of Unix, called Irix, runs on as many as 512 of SGI's R12000 CPUs. NASA has an Origin 3000 using 1,024, Silverman said. SGI has been working to bring this capability to Linux, a comparatively young operating system embraced by most computing companies and on which SGI has staked its future.

SGI touts the flexibility of its Origin 3000. For jobs requiring lots of data input and output, the machine can be populated with "P bricks," each with 12 PCI slots. An X brick delivers high-speed networking. D bricks add storage. CPU bricks boost computing horsepower.

With the use of a graphics brick, the Origin 3000 becomes the high-end Onyx 3000 graphics workstation, Silverman said. High-powered graphics machines are a hallmark of SGI, whose hardware was used to produce "Jurassic Park" and parts of "Toy Story 2."

The system will be able to accommodate both the existing R12000 chips, Itanium chips and Itanium's successor, code-named McKinley, though the different chip modules will have to run separate operating systems and won't be able to share memory, Silverman said.

This isn't the first time SGI has pinned its hopes on a new computer product. Under the leadership of former chief executive Rick Belluzzo, the company embarked on a strategy to bring its engineering expertise to Windows workstations. But the products, much delayed, were a flop, and last year, the company wrote off its unique designs.

But maybe things will be different with the 3000 series.

"Given that Mr. Bishop can attract top talent like this, there must be something there to build on," Milunovich wrote. "Now the task will be to get the sales force motivated."

The Origin 3000 series comes in three models. The 3200 has two to eight processors, the 3400 has four to 32, and the 3800 has 16 to 512.

Prices are expected to start around $50,000 for a two-processor model, though entry-level systems are more likely to cost about $100,000. For computational tasks such as gene sequencing, systems will cost $500,000 to $600,000, Silverman said.

Design systems purchased by customers such as automotive companies will cost in the neighborhood of $2 million, and high-end systems for universities probably will cost $5 million to $10 million, he said.