OK Mark, I want that T-Shirt. I figure I'll try anything to make the stock go up, so I wrote you an article. Maybe some SI regulars can pick through it for mistakes, or suggest new links.
Here it is:
Silicon Graphics Inc. (SGI) started out in 1982 when James Clark decided to get 6 engineers to build a computer with an architecture designed exclusively for the demanding number-crunching of computer-generated graphics. Two years later they were joined by Edward R. McCracken
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, a 16-year veteran of Hewlett Packard. In 1984 they shipped their first workstation, and three years later, their first RISC workstation. Using RISC ("reduced instruction set chips) vastly increased the speed of their machines, and in 1992, SGI they bought MIPS - a chip manufacture/design company based on fast RISC technology. On February 18, 1994 Jim Clark resigned from SGI in order to start a new company working in "interactive television" -- a project would eventually be become Netscape -- leaving McCracken to be named new CEO
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of a company that would eventually have 3.7 billion dollar annual revenues, and 11,000 employees worldwide.
SGI quickly became synonymous with cutting-edge special effects used in movies like "Terminator II" and "Jurassic Park. One issue of Byte called SGI the "Ferrari" of computers Their success fueled rapid growth, and a thirst for ever-faster machines. In 1996 the company made an ambitious decision - to buy the supercomputer company Cray Research Inc. At this time SGI was embarking what seemed like an impossible dream - to create a computer system that would let an engineer or artist design programs on a workstation that could be effortlessly scaled up to supercomputer levels. Not only would this make arcane CRAY supercomputers much more accessible - but it would also reinforce the SGI workstation line
But for investors, the dream began to turn into a nightmare. After hitting a high of about $46/share in August of 1995, SGI's stock prices took investors on a sickening ride as profits were eaten up in merger costs. Some projects - like an interactive TV venture in Orlando -- had disappointing results. The growth of the early, low-bandwidth internet was not particularly fertile soil for SGI's fast, high-bandwidth machines. Other workstation manufactures began going after the lucrative emerging market for graphics machines. Investor doubts mounted when Pixar's movie "Toy Story" showed amazing graphic effects generated from Sun workstations. (Pixar had actually gotten the workstations for free from SUN - and used SGI machines in the design work, but SGI never managed to counter the impression that they were loosing ground to the competition.). The company continued to regard itself as a manufacturer of elite machines for artists and engineers. They shunned the low end market. Sales personnel were accustomed to having specialty customers come to them - and that corporate vision was reflected in a weak advertising and unfocused marketing.
By the time SGI's new O2 workstations were in full production, they found that their success had apparently been torpedoed from a humiliating and unexpected source. SGI's dream of blending workstation to supercomputer had an achilles heel - it was based on the IRIX flavor of the UNIX operating system. In recent years, relatively unsophistocated machines running Windows NT had become capable of impressive levels of performance that were nibbling away at the low end of SGI's market. Workstation sales sagged, and SGI increasingly depended upon server sales to take up the slack.
It seemed for a while that SGI's stratagy would pay off in the server department. Scaleable SGI modules could build web servers capable of handing video and other high-data loads. Higher-than expectation earnings in July of 1997 drove exulting investors into the $30/share range. It looked like SGI had finally made a turnaround. Then in early October, SGI preannounced devastating and unexpected losses for Q1.
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It appeared that server sales were also be suffering from erosion as windows NT continued to exert its influence, and as SGI rapidly plummeted to $13/share, many investors suddenly found themselves wondering if SGI would go the route of Apple, and Atari. SGI has since announced massive layoffs of 700 to 1000 people
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, and is looking for a new CEO to replace McCracken, who guided the company through almost ten-fold growth.
So - does SGI have a future? Judge for yourself. MIPS recently completed manufacture of it's 70 millionth chip.
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SGI has rolled out a new and more aggressive marketing campaign, and is now regularly issuing far more substantial press releases. On November 10th, SGI announced it would cut the price of it's O2 workstations (including Softwindows 95) to less than $6000
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The company has announced it will buy back some stock - and still has plenty of cash left for new projects.
And some of the old projects may finally be starting to bear fruit. SGI's dream of fully scalable supercomputers has finally become a reality. The company has deployed a vast 1,328-processor machine that is the largest production supercomputer in the world
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- but is still is binary compatable with their smaller machines. SGI's unique investment in cc-NUMA architecture
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has continued to set records, making their machines ideal for huge database applications. SGI is also poised to take markets in emerging video-on-demand and internet virtual reality models. SGI machines created the astonishing virtual worlds in "Riven," (the sequal to "Myst") - a CD-ROM game whose sales are already rocketing on anticipation of Christmas sales
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(SGI will still be making royalties on those Nintendo 64 game cartridges, too.) SGI is now in full production of a new product line that delivers what most experts consider the most powerful computers you can buy - at lower prices than ever before. SGI machines are modeling the activity of the human brain, predicting the weather, simulating nuclear explosions, and mapping the surface of the planet Mars. Still planned: the "Everest project"
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- a collaboration with Netscape to create internet servers with a factor of 10 increase in speed.
But most investors seem to be ignoring the above, and instead are pinning their hopes on SGI's secret weapon - a new windows-based megaclone engendered with all the cunning that SGI engineers have distilled from a decade of experience designing the fastest graphics machines on planet Earth. After years of ignoring the desktop crowd, SGI is going to try - for once - catering to them.
Can SGI still turn a profit? Consider this: in a few years you could find yourself using your favorite Windows applications on a workstation that wears the same SGI logo you saw on all those pictures from NASA mission control. You may use that workstation to link up to an ultra-high performance SGI server that permits high-bandwidth teleconferencing. You could be using household appliances loaded with MIPS processors, routinely accessing massive databases that require cc-NUMA machines, downloading movies with spectacular SGI special effects, or experiencing virtual worlds created on SGI supercomputers -- or watching cable financial news shows produced by SGI graphics live video studios. And in this world of the future, I'm guessing that they will be telling you that SGI's stock has zig-zagged again, and is tipping the chart at new highs.
--OK guys, tear it apart. --JD |
