IBD. SGI Breaking On Through To Wintel Computing Side
investors.com
Date: 1/11/99
Author: Michael Tarsala
Silicon Graphics Inc. hopes its first-ever
computer workstations based on popular
''Wintel'' technology will be the remedy
the troubled company has been seeking.
SGI on Monday will unveil workstations
based on Intel Corp.'s chips and
Microsoft Corp.'s Windows NT
operating software - the Wintel duopoly.
SGI is one of a handful of companies
that until now has avoided using the
Wintel architecture in its workstations,
which are souped-up computers used for
complicated tasks such as graphics.
''It's probably the most significant
product introduction in the history of the
company,'' said Rick Belluzzo, SGI's
chief executive. ''We're a different
company than we were a few years ago.
We've realized that we have to embrace
and extend technology that's available in
the marketplace, rather than do
everything ourselves.''
SGI says its first NT-based computer
will ship in February with a starting price
of $3,395. It comes with two Intel
Pentium II processors, each running at
450 megahertz. Workstations with four
Intel processors are expected to ship by
mid-year for roughly $6,000.
The machines will compete with those
sold by Hewlett-Packard Co., Compaq
Computer Corp. and Dell Computer
Corp., among others. Company officials
and analysts believe they will boost
SGI's sagging workstation business.
Once the ruler of the high-end desktop
workstation world, SGI has fallen from
grace. The company's workstations,
based mostly on home-grown
technology, still are among the world's
most advanced computers. But for all of
SGI's technical savvy, the company has
lost market share to competitors in
recent years.
SGI has spent most of its last eight
quarters in the red. In the company's first
quarter ended Sept. 30, revenue was
$616 million, down 20% from $768
million in the year-ago period. SGI
reported a net loss of $43 million for the
quarter.
The company's slide is due in large part
to other companies' moves to fast-selling
Wintel workstations. These systems cost
less than those of SGI and others that
use home-made chips and operating
systems.
SGI's Unix-based workstations typically
sell for more than $10,000.
The new workstations should help SGI,
says Ken McBride, analyst with
Salomon Smith Barney in San Francisco.
Sales of NT workstations are expected
to make up 20% of SGI's total revenue
in the company's fiscal year '00,
McBride says.
Selling NT computers should be easier
than Unix machines, McBride says. The
total NT workstation market increased
53% from '96 to '97, he said. In the
same time period, the Unix workstation
market declined 16%. SGI had been
competing only in Unix workstations.
Still, the new NT-based SGI computers
cost 10% to 20% more than similar
workstations from such price leaders as
Dell and Compaq, says Murali Dharan,
marketing vice president of SGI's
workstation division. But SGI's design
will help the new computers pack more
punch for a competitive price, Belluzzo
says.
Analysts claim the new SGI systems are
different from most others on the market.
For one, the SGI machines should work
with audio and video without the need
for add-on cards used by most NT
computers. The traditional card design
can slow graphics, video and audio
performance. That's due to the slow
infrastructure used for sending graphics
data between add-on cards and the
computer's memory, Dharan says.
SGI also has increased the rate at which
graphics information travels inside the
computer by putting relevant hardware
directly into the computer near the main
processor. The new SGI workstations
are designed to send graphics traffic six
times faster than the typical NT
workstation.
In addition to unveiling new machines,
SGI has introduced new ways of selling
them. Taking a page from Dell, SGI will
sell its new NT computers direct - a
change from the company's typical sales
methods.
The NT workstations will be
manufactured off-site by Huntsville,
Ala.-based SCI Systems Inc. SCI will
receive orders electronically from SGI's
sales force, the Web and computer
resellers. The computers then will be
shipped straight to customers.
''This isn't just about a product,'' Dharan
said. ''It's about an innovative way of
doing business for SGI. Otherwise, we
wouldn't be viable long- term.''
Computers and new sales methods alone
won't save SGI's business, warns Peter
ffoulkes, an analyst with market
researcher Dataquest Inc. in San Jose,
Calif. The company has made some
strides in trimming expenses and
introducing new products since Belluzzo
became chief executive in January '98.
But it's important the product launch
goes well, ffoulkes says.
''If for any reason this doesn't go as well
as the company would like, it's going to
be much more of a challenge getting SGI
back on track,'' ffoulkes said.
(C) Copyright 1999 Investors Business
Daily, Inc.
Metadata: SGI INTC MSFT HWP CPQ DELL
SCI I/3575 I/3675 I/3270 I/3572 I/3679 E/IBD
E/SN1 E/TECH |
