Silicon Graphics faces challenges, regroups again
Reuters
By Andrea Orr
PALO ALTO, Calif., Aug 5 (Reuters) - It has been less than a year since Silicon Graphics Inc.<SGI.N> completed a sweeping restructuring that was to have set it on a new course toward broad new commercial opportunities.
But many of its turnaround efforts have already stumbled, and the company -- despite making some of the most advanced computers available -- is preparing to unveil yet another new business strategy next week.
Analysts are expressing doubts over Silicon Graphics's ability to parlay its substantial resources into successful commercial products.
They say the company has serious problems in all of its key product areas and has long been unable to demonstrate a large commercial demand for the ultra-high-performance computers for which it is best known.
Silicon Graphics has declined to comment on the strategy it will unveil to analysts on Tuesday in New York.
In recent interviews, however, company officials have acknowledged multiple problems in key product areas, including the new, lower-priced workstations that were to have been the cornerstone of its last turnaround effort.
"It's not secret we got off to a stumbling start (with the workstations), and even though the production problems have been fixed, we are still suffering from softer demand and distribution reach than we would like," Chief Financial Officer Steve Gomo told Reuters last month.
Analysts say that problem, along with a slowdown in its server computer and supercomputer businesses, make renewed turnaround efforts problematic.
One analyst, who asked not to be identified, described the company's outlook as a "crapshoot," or a "coin toss."
Others who are not so blunt say the company is in a position like that of Apple Computer Inc.<AAPL.O> before its turnaround, when it was putting out state-of-the-art products but was dogged by execution problems and limited demand.
"The issue is moving into commercial markets more aggressively," said Salomon Smith Barney analyst John Jones. "It will be hard to maintain the kind of growth they would like with the majority (of their server products) serving high-performance niches like national labs and supercomputer centers."
Silicon Graphics workstations and servers perform some of the most complex design and simulation tasks in a range of industries, from movie special effects to automobile design and crash tests.
Earlier this year a Silicon Graphics-enabled robot was sent to Chernobyl to help create a 3-D map of the site of the failed nuclear reactor, the crumbling sarcophagus that covers it and the fields of radiation that exist inside.
From a business point of view, however, analysts say there are two big problems with the company's focus on such high-end products: It requires spending heavily on research and development to stay on the cutting edge, and there is simply not much demand for million-dollar-plus computers as big as washing machines.
"They have been designing complex projects that ultimately didn't pay for their R&D," said Peter Glaskowsky, analyst at Cahners MicroDesign Resources in Sunnyvale, Calif. "They have thousands of engineers and individual projects that take hundreds of millions of dollars."
For much of the past year, Silicon Graphics has been trying to shift into lower-end markets, largely with the introduction in January of a new line of sub-$6,000 machines that perform many of the same functions as older models that sold for $25,000. To date, the new workstations have not made the splash the company had hoped for.
Silicon Graphics's recently reported results for the fourth quarter ended June 30, however, showed better performance from higher-end products that had been expected to suffer from a dramatic drop in demand.
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