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SGI to lay off 10 percent of staff

The high-end computer maker says that purging 400 jobs should help it return to profitability; it will save $10 million per quarter.

High-end computer maker Silicon Graphics Inc. said Thursday that it plans to cut 400 jobs, or 10 percent of its work force, in an effort to return to profitability.

Mountain View, Calif.-based SGI said the move was part of a restructuring effort that would save the company about $10 million per quarter, starting with the quarter ending Sept. 26. The company said it plans to take a restructuring-related charge of between $15 million and $20 million in the quarter ending June 27, mainly due to severance packages.

An SGI representative said employees were being notified about the cuts on Thursday. She said layoffs would take place companywide and that marketing and administrative positions would be hardest hit, while sales and engineering departments would be least affected.

SGI CEO Bob Bishop said the company decided to restructure because revenue has been disappointing, despite SGI's expanded defense contracts and the growing demand for its Altix line of superclusters and servers, which use Intel's Itanium processors and run the Linux operating system.

"Today's announcement reflects our determination to take the steps required to improve the company's financial position and reduce its breakeven point," Bishop said in a statement.

Over the past two years, SGI has abandoned its ill-fated plans to expand into the general-purpose server market amid disappointing revenue and challenges from entrenched competitors, including IBM, Hewlett-Packard, Sun Microsystems and Dell Computer.

Instead, SGI has worked toward returning to its roots, selling high-end servers and workstations for visually intensive tasks such as designing cars and creating digital imagery for movies, including the "Lord of the Rings" series. In January, it landed a multimillion-dollar deal with Lockheed Martin, which bought new SGI high-end servers to train Air Force F-16 fighter jet pilots. The following month, it won a $26 million contract with the Department of Defense.

The restructuring plan comes a month after the company announced disappointing results for its fiscal third quarter, which Bishop called "a tough quarter." For that period, the company posted a loss of $35 million, down from a net gain of $10 million in last year's third quarter.