Why ink a $40M contract as SGI collapsed?

Computerworld - By February, Silicon Graphics Inc. (SGI) was in deep trouble. It was shedding employees and continuing to lose money — yet it announced that it had just signed a $40 million deal with the U.S. Department of Defense.

The DOD purchases three to six systems in its high-performance computing program each year. The machines are used for cryptology, missile defense, weather forecasting and many other uses. The agency buys from all the major systems vendors.

On April 1, SGI said it was being bought by Rackable Systems Inc. for $25 million. In hindsight, the Defense Department's decision — made at the same time that SGI was unraveling — seems puzzling.

But Cray Henry, director of the DOD's High-Performance Computing Modernization Program, said his department was aware that SGI's "financial situation was not as strong as we would have liked," Henry said. But it believed the company was still "financially responsive," he added.

The Defense Department also had a history to work with. SGI "continued to do business with the federal government without incident" during its earlier restructuring in 2006, Henry said.

The multiyear, $40-million contract with SGI was signed in January for six systems for a number of DOD computing centers. SGI was picked on the basis of an annual review that included a complete evaluation of the technology. "SGI offered the most compelling solution with the best usability, overall performance and price/performance," he said.

The DOD is now watching Rackable's acquisition bid closely. Both SGI and Rackable "tell us they are committed to maintaining the systems we purchased in prior years and are committed to delivering systems we ordered for delivery this year," Henry said.

Delivery of its first system is due this month.

Rackable and SGI hope to close the asset sale by the end of May, if the deal gets court approval. In conjunction with the sale, SGI filed for bankruptcy protection in U.S. Bankruptcy Court in New York.

"There will be significant uncertainty through May," while the companies and the court sort things out, Henry said. "But to date, the active participants have committed to support our needs, and they are demonstrating that commitment through active and ongoing production and delivery of systems and services."