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Sun "encourages" SGI users to swap

It didn't take long for the vultures to start circling over Silicon Graphics, the embattled high-end workstation and server vendor.

2 min read
It didn't take long for the vultures to start circling over Silicon Graphics (SGI), the embattled high-end workstation and server vendor.

Sun Microsystems (SUNW) said today it is extending its existing Ultra Enterprise upgrade program to "encourage" SGI users to upgrade to Sun's Enterprise servers. The program now also includes Sun's HPC server products.

The program, which runs for the next six months, offers trade-in credits of up to 20 percent on Sun Ultra HP servers when trading in an SGI Challenge, Power Challenge, or Origin 2000 server. Such servers run the Unix operating system and serve at the center of computer networks capable of handling the largest mission-critical tasks, like online transaction processing.

Sun's program comes amid a spate of bad news for SGI. The company's chairman and chief executive, Edward McCracken, announced earlier this week that he would will step down. The company also said it will lay off up to 1,000 employees.

"It looks like great timing, but it's purely coincidental," said a Sun representative of the timing of the announcement.

SGI's first problem emerged in January of last year with the release of the MIPS R5000 and R10000 processors used in its high-end workstations and servers, according to industry analysts. The processors were announced earlier than originally planned to counter the release of Sun's new processors in late 1995.

While SGI was able to incorporate the R5000 into entry-level workstations early, it could not deliver enough of the R10000 products, causing some customers to look elsewhere for systems. The company also later had to issue a recall of R10000 chips due to a manufacturing flaw.

By late 1996, personal workstations based on Microsoft's Windows NT operating system from Compaq and Hewlett-Packard started to gain popularity in the low end of the graphics and financial services market, a trend SGI decided to pursue only recently.

Silicon Graphics won't have its first NT workstations ready until at least July 1998 and will miss out on several quarters of explosive growth in the market for NT workstations. Meanwhile, the company may have a continued rough ride in terms of financial results.

In SGI's first quarter, which ended September 30, the company reported a net loss of $56 million, compared with a loss of $22 million a year ago. The company's stock is now trading at around 14-11/16 per share, a price that is hovering slightly above a one-year low of 12-5/8.