Silicon Graphics' New CEO Aims
To Brighten Company's Picture
By LEE GOMES
Staff Reporter of THE WALL STREET JOURNAL
In one of the first days in his new job as chief executive officer of Silicon
Graphics Inc., Richard E. Belluzzo was walking down a hallway when he
experienced a bit of culture shock in the form of a dog wandering the
corridors. When Mr. Belluzzo asked, he was told that there was a company
tradition of SGI engineers bringing their pets to work.
Suffice to say, it isn't a tradition anymore. For one thing, it hardly fits Mr.
Belluzzo's new slogan for the once-freewheeling SGI: "Get serious."
But the former Hewlett-Packard Co. executive may find it easier to ban
canines than to get SGI out of the doghouse. The Mountain View, Calif.,
computer maker, best known for supplying the computers used by
Hollywood special-effects wizards, has had a long run of slow sales and
disappointing quarterly earnings. Growth has been stymied by the fact that
increasingly powerful but much lower-cost PCs have stolen low-end
business from SGI. At the same time, the company has stumbled in selling
more expensive "server" computers to big companies.
The best indication of SGI's malaise is the fact that its stock, which closed
Tuesday at $14.8125, down $1.25, or 7.8%, in New York Stock Exchange
composite trading, is roughly a third of its level in 1995.
Mr. Belluzzo, 44 years old, laid out his plan for changing all that at a series
of presentations Tuesday in New York, his first major public appearance
since taking the helm in January. The essence of his strategy is to bring
some much-needed corporate discipline to SGI while banking on growth of
the graphically oriented computers that are SGI's hallmark.
A Plan for Silicon Graphics
The new CEO is betting on...
Demand for advanced graphics and visualization
"Wintel" technology from Intel and Microsoft
Better business controls
$200 million in annual expense reductions
10% headcount reduction through attrition and divestitures
Spin off Cosmo graphics software unit and most of microprocessor
division
Sources: The company; Baseline
Although graphics is generally considered a niche, Mr. Belluzzo argued that
many industries need powerful computers to make simulations of objects,
processes or natural phenomena. SGI plans to focus on communications,
entertainment, government, manufacturing, energy and science -- six
markets that he said spend about $26 billion annually on computer
technology, and should spend about $40 billion by 2001.
Agreement With Intel
As expected, SGI will try to broaden the appeal of its technology by moving
toward the "Wintel" side of computing, using microprocessors from Intel
Corp. and operating systems from Microsoft Corp. SGI and Intel entered
into a cross-licensing pact Tuesday that will not only make SGI an Intel
customer, but also will give Intel access to SGI's graphics technology.
Mr. Belluzzo also confirmed plans to spin off SGI's MIPS Technologies Inc.
unit, which makes microprocessor chips, as an independent, publicly owned
business. In the first phase, MIPS is expected to make an initial public
offering of as much as 20% of its shares outstanding, with SGI holding the
remainder.
Analysts are mixed on SGI's chances. Some wonder if there is room in the
Wintel world for the high-end graphics features that Mr. Belluzzo hopes will
set SGI's machines apart from the pack of PC cloners. Most people, though,
agree on at least one thing: that if anyone can do it, Mr. Belluzzo can.
Mr. Belluzzo's hiring, accomplished by the recruitment firm of Heidrick &
Struggles, was regarded as a spectacular coup for SGI. A protege of
Richard Hackborn, the fabled H-P executive who built its huge printing
business, Mr. Belluzzo was No. 2 at H-P and in line to succeed Lewis Platt
as CEO in a few years.
But H-P insiders say Mr. Belluzzo was itching to run his own company, and
was increasingly at loggerheads with Mr. Platt over H-P's direction, with
Mr. Belluzzo favoring a leaner operating style that broke with H-P tradition.
Ultimately, Mr. Belluzzo was lured away to SGI by a compensation
package that could be worth upward of $100 million if he can get the
company back on its feet.
In an interview before Tuesday's presentation, Mr. Belluzzo painted an
unflattering picture of what he found at SGI. The company didn't listen to
customers, had a lackadaisical attitude toward business controls, spent
money much too freely, and was generally out of touch with the realities of
the computer marketplace.
Lingering Strengths
But as the same time, he said, SGI had strong technology, talented
employees, a well-known name and a still solid -- albeit increasingly
threatened -- position in a number of key markets. Among them were
Hollywood, manufacturing design and scientific visualization. Thus, his
strategy: Shore up existing markets, capitalize on the company's strengths
and get its house in order.
"The issues were all quite obvious," he said. "I didn't have to go off and
invent a strategy. All we had to do was execute."
The company didn't make specific product announcements Tuesday, though
it sketched out its general product direction. Later this year, for example, it
will be shipping a workstation based on Microsoft's Windows NT operating
system. The workstation will be compatible with all other NT machines, but
it will have what the company promises will be better built-in graphics.
In the next few years, SGI will ease out of its own proprietary
microprocessors in favor of chips from Intel, especially a powerful chip
called Merced that is expected in the second half of 1999. While SGI will be
selling Windows machines, it plans to continue offering computers using its
own flavor of the Unix operating system.
Mr. Belluzzo said the company would not compete with the low end of the
PC marketplace. Its systems will continue to start at several thousand
dollars. He also said its higher-end server computers would not be targeted
at accounting or business needs, but instead at scientific and engineering
applications. The common denominators, he said, will be technical markets,
including the Internet servers, which place a premium on visualization.
But graphics is now one of the hottest areas in the Wintel world, with PC
displays getting better-looking all the time. Even so, Mr. Belluzzo insisted
there was still room for SGI. Unlike the average Wintel PC maker, he said,
"designing systems with visualization at their core is our great strength."
William L. Moran, research director at D.H. Brown Associates Inc., a Port
Chester, N.Y., consulting firm, questioned whether the visualization fields
that Mr. Belluzzo is targeting are really large enough for a computer maker
that now has about $4 billion in annual sales. "Is there a market there?
Probably," he said. "How big is it? We don't really know."
But Laura Conigliaro of Goldman, Sachs & Co. said that Mr. Belluzzo's plan
was "ambitious and well-thought-out. It fits together very well. This is not
going to be a cakewalk for them, but Belluzzo has a track record for doing
these sorts of things."
He also has a track record for quickly taking responsibility for things. One
question he did not want to answer, for example, involved whose fault it was
that SGI got into the predicament it is in. "I haven't thought about whose
fault it is," Mr. Belluzzo said. "All I know is whose job it is to fix it." |
