Here's a repost of the SF Chronicle article which has jump started the rumor mills regarding SGI. Personally, I feel the 1)reorg is definitely needed, 2) Ed will have the next six months to shape up or be shipped out (you can blame a lot on him, but what about the SGI's Board of Directors?), and 3) only someone as big as IBM can merger or swallow SGI up in a deal which will be favorable (22-26?)to investors.
REPOST:
Changes Looming At SGI
Layoffs, restructuring expected on Monday
David Einstein, Chronicle Staff Writer
Silicon Graphics Inc., the struggling workstation maker, is expected to announce a reorganization on Monday, including layoffs of hundreds of workers.
The Mountain View company, whose computers are used by engineers and for Hollywood special effects, also is looking for a suitor and has sparked interest from giant IBM Corp., said a source close to SGI.
In addition to a restructuring, SGI on Monday will report first-quarter earnings. The company has said it will lose about 20 cents per share, suggesting that it has yet to solve manufacturing and management problems that sent it into a tailspin more than a year ago.
Chairman and Chief Executive Officer Ed McCracken, who has been under the gun for months, probably will survive the reorganization, said sources close to SGI. But even the most generous Wall Street analysts give him no more than six months to turn things around or lose his job.
SGI's board of directors met via conference call on Wednesday to nail down particulars of the restructuring. One source said 300 full-time jobs probably will be cut, along with some contract
positions. The company has about 11,000 full-time employees worldwide. The same source said the board has considered beginning a search to replace McCracken, who has been president and CEO since 1984 and chairman since 1994. McCracken refused to comment.
The board apparently was spurred by a rapid decline of SGI's stock, which has lost 41 percent of its value in the past three weeks. It fell 6 cents yesterday to $15.94.
On October 6, SGI warned that its first-quarter results would be well below Wall Street estimates, because of slower-than-expected sales of its network servers. The warning shook investor confidence in McCracken, who a few weeks earlier had told analysts that SGI expected a good first quarter.
''When I ran into him before the analyst meeting, McCracken was relaxed and thought he had control of the business again,'' said analyst John Jones of Salomon Brothers in San Francisco. ''Then six weeks later, everybody, including him, it appears, got a pretty negative surprise.
''If I was a board member, I'd have to be asking myself 'Is it time to make a transition to a new CEO?''
Steve Dube, an analyst at Wasserstein Perella in New York, echoed that sentiment. ''I think the company needs a fresh wind at this point,'' he said, adding that McCracken has ''run out of excuses.''
McCracken has little wiggle room, in part because there are few executives left to take the blame. Most of the people who could be fall guys for SGI's troubles have either defected or already been
ousted.
Among the more notable departures in the past couple of years: Tom Jermoluk resigned as SGI president to become CEO of @Home; Wei Yen is now CEO of Navio Communications; Rob Burgess left to become CEO of Macromedia Inc.; and Pavan Nigam became a co-founder of Healtheon.
In addition, both Chief Financial Officer Stanley Meresman and Senior Vice President Michael Ramsay resigned in May in a reorganization after a disastrous third quarter.
Although SGI is widely praised for innovative technology, analysts say the company has been unable to manage its inventory and has failed to accurately forecast demand for its workstations. As a result, SGI has suffered from product shortages, unhappy customers and reduced profits.
''Every one of their products seems to be outstanding,'' said analyst Bruce Raabe of Collins & Co. in San Francisco. ''But look at the financials and you ask, 'Where is the money?' ''
SGI has drawn fire for a number of missteps:
-- Its 1996 acquisition of Cray Research, a money-losing maker of supercomputers, caused SGI to divert management resources to Cray at a time when it should have been paying attention to its core
business.
-- The company has failed, until very recently, to embrace the growing market for the Microsoft Windows NT operating system. By relying on its chips, hardware and software, SGI has isolated itself
from the fastest growing segment of the business market.
-- Two years ago SGI appeared perfectly positioned to take advantage of the Internet by leveraging its networking strengths and graphics technology. But while rival workstation maker Sun Microsystems Inc. took wholesale advantage of the situation with its Java programming software, SGI failed to gain a foothold.
Much of what is wrong with SGI may be beyond the control of McCracken or anybody else. Every business in which SGI is a player is under attack from bigger rivals.
At the low end, its powerful workstations are being challenged by Intel/Microsoft-based PCs that are often as powerful and less expensive.
At the high end, its servers go up against those of Hewlett-Packard Co., Sun and IBM -- three companies known for their aggressive marketing.
Even in the area of film and TV special effects, where SGI has ruled, PCs are starting to make inroads as Windows NT takes an increasing bite out of the market once dominated by Unix-based machines such as SGI's. As a result, many special-effects houses now rely on cheaper PCs. |
