WSJ. Silicon Graphics Faces Tough Road, Unseen Future to Stay Independent
August 25, 1999
By LEE GOMES
Staff Reporter of THE WALL STREET JOURNAL
Silicon Graphics Inc. has lost one savior and anointed another, but some
analysts say the computer maker is likely to face a difficult time remaining
independent.
The Mountain View, Calif., company on Monday
announced the surprise resignation of Richard
Belluzzo as chairman and chief executive officer
and his succession by Robert Bishop, a director
and former SGI executive. Mr. Bishop
immediately said he has no plans to try to sell the
company and reaffirmed his commitment to a
revised strategy the company announced earlier in
August.
But SGI is increasingly perceived as a niche player
with an uncertain future. News of Mr. Belluzzo's
departure caused the company's already battered
stock to fall $1.5625, or nearly 13%, to close at $10.875 in New York
Stock Exchange composite trading Tuesday. The news was disclosed after
the close of regular trading Monday.
People familiar with the matter said Mr. Belluzzo will become head of
Microsoft Corp.'s Internet operations, though Microsoft wouldn't
comment on that possibility Tuesday. Still, the news was enough to push
up Microsoft's stock, which closed at $92.1875, up $5.75, or 6.7%, in
Nasdaq Stock Market trading.
Mr. Bishop, 56 years old, has been
associated with SGI since 1986 but is barely
known outside the company. Yet he is SGI's
largest individual shareholder, owning roughly
2% of its stock. He has that stake because of
an unusual bargain he struck upon joining the
company, in which he vowed to set up a
successful international sales operation in
exchange for a percentage of the company.
Mr. Bishop has homes in California, Geneva
and Tokyo; his wife is from Japan. He has
been an SGI board member since 1993, but had no executive position in
recent years.
In a conference call on Monday announcing the switch, Mr. Bishop said he
wanted to rebuild SGI, not dress it up for sale. "This is a long-term
position and we will in fact revive some of our former glory," he said.
But analysts who track the company, including Phillip C. Rueppel of
Deutsche Bank Alex. Brown, speculated that SGI would go the way of
many other second-tier computer makers and find a buyer. One possible
attraction is a balance sheet with about $1.8 billion in assets, including
$571 million in cash. That figure is close to the company's current market
capitalization of about $2 billion, meaning that the outfit could be had
essentially for its book value, excluding any deal premium.
International Business Machines Corp. is sometimes mentioned as a
potential purchaser. But some analysts said IBM may not be interested
because of its recent purchase of Sequent Computer Systems, a company
akin to SGI, for $810 million, and no other obvious candidates come
immediately to mind. "Everyone wants to get married, but some people
just aren't marryable," said Stephen C. Dube, analyst with Wasserstein
Perella Securities.
Things might be different if Mr. Belluzzo had had more success in his 19
months at SGI. The company had been known for its high-quality graphics
machines, but had lost its once prominent position in high-end computing.
Mr. Belluzzo arrived at SGI from Hewlett-Packard Co. in January 1998,
and embarked on a strategy centered around computers running
Microsoft's Windows NT software. But earlier this month, the company
abandoned that plan, saying it didn't have the resources to compete with
PC companies like Compaq Computer Corp.
Mr. Belluzzo wasn't available for comment Tuesday. His defenders said he
restored some semblance of health to the company, selling off its Cray
supercomputer and MIPS microprocessor units. One associate said he
was leaving because he was attracted by the Microsoft opportunity, and
because he had little interest in running the low-volume, high-end server
business that SGI says it will now become.
The Microsoft opportunity, by contrast, offered Mr. Belluzzo the chance
to use his operating and financial skills in an entirely different field, one
person familiar with his thinking said. The software giant has plowed
hundreds of millions of dollars into Internet services in the past four years.
Though Microsoft has several popular Web sites, its president, Steve
Ballmer, has been pushing to narrow its focus into a few areas it could
lead, such as messaging, search services and Internet access.
Mr. Belluzzo has been on close terms with Microsoft executives since his
days at H-P, where he was the computer maker's liaison to the software
company. His appointment increased speculation that Microsoft might spin
off the Internet operations as a separate publicly traded company, a theory
that contributed to Microsoft's stock rise Tuesday. But a person close to
Microsoft's thinking said it is more likely to divest itself of pieces of its
Internet operations.
--Don Clark contributed to this article.
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