Q&A: SGI CEO sees path out of bankruptcy with x86 products

Dennis McKenna discussed the company's decision to file for Chapter 11

Silicon Graphics Inc. (SGI), which produces some of the world's largest supercomputers, filed for Chapter 11 bankruptcy protection this week. The company's high-performance systems, which in recent years have been largely based on Itanium processors, have long been used for visualization work in the entertainment, automotive and aerospace industries, among others, as well as by governments. SGI, however, has been under intense competition from low-cost x86 clusters -- competition that has had an impact on the company. But CEO Dennis McKenna, in an interview with Computerworld, said the Chapter 11 move will allow SGI to eliminate debt and expand its business, in part, by offering x86-based systems next month.

Excerpts from the interview follow:

Why did you file for Chapter 11? The company had accumulated legacy costs over the years, and as we explored options to fix those issues ... this became the option that could provide the quickest and best relief in order for the company to move forward with its new business model.

Have you started speaking to your customers about it and addressing their concerns? We have. We have been very active globally with our customers, suppliers and partners, and the response has been overwhelmingly supportive of the action. We gave them an explanation about what it means for the welfare of the company and its ability to move forward and to support them in the short term and longer term as a continued supplier and developer of next generation platforms. The one clear message is we're glad that there is a level of certainty on the future of SGI. It's been that uncertainty that has really had an impact, despite having a new management team and strategies. The financial overhang was something that had to be removed in order for us to be successful in driving those new plans.

What's the basis for this level of certainty? You've gone through a number of cutbacks, you had a 12% layoff in March and you are under intense competition from the x86 supercomputing Linux vendors. Where does this come from? We have a new management team in place. We have realigned our organization and the metrics to improve our ability to execute, to achieve those top-line growth strategies. We've defined a new business model and we removed legacy cost structures in the company. And we have a balance sheet that will be fixed through this process. This is a stable foundation for us to move forward; the company has not had that for some time.

How are we going to compete in the marketplace successfully? One, we believe that we are uniquely qualified to address a growing challenge of dynamic complex data and being able to access it, analyze it and transform it -- and that statement in itself is the opportunity for SGI. The implication to that is we have the ability to expand our addressable marketplace, and that's exactly what we are doing. We are taking three paths to doing that. The first is within our existing marketplaces. The company has over 6,000 active customers. These customers have SGI products and services, they like our products, they want us to be successful, and we can do a better job just within that customer base. We have done a not-so-stellar job in bundling the solutions that we've done for many customers within the verticals that we participate in. We are doing a better job now in putting together solution sets across our verticals that are much more efficient from a price/performance standpoint and in getting that message out into the marketplace.

The second piece is we're going into a new market that is enterprise. That is the biggest dollar spend, and we believe that our unique shared memory architecture in Altix has significant performance advantages for particular application areas and we will be launching that. As these enterprise customers are dealing with bigger data sets, they are not just looking for transactional improvements, they are looking for the ability to access it, analyze it and transform it to improve their decision-making and their overall competitive advantage.

The third piece is new products. With this large installed base that we have, we've been only addressing 20% of the overall spend. With the new products that we will be launching, we will be able to address 80% of that spend. What is that new product? x86. We are bringing out x86 products and we will be announcing that in mid-June.

What is the reason for moving into an x86 product, and will it still have shared memory capability? The initial products will not have the shared memory capability. This is to allow us to address a larger percentage of our customers' budget dollars within our installed base. If they have an opportunity to do more business with SGI, we believe that will be a preference.

What kind of products will you be delivering to the enterprise market? We will be launching this in a formal way, but just in the context of [the] Altix 4700 blade family with the Montecito [Intel Itanium] processor chip set -- which comes available in the July -- the combination of the Altix Montecito with shared memory, scalability [and] high bandwidth can produce 10 time-plus over existing solutions within particular application sets. I don't want to get into any more specifics.

In light of your recent action, will customers see any changes in support and service? None whatsoever. In fact, we realigned out sales and services organization so it would be more efficient and productive.

Are you are planning any additional workforce cutbacks? No more than what we have already announced. We've taken $100 million dollars out of the company. We have an additional $50 million under way which will be complete by the end of this calendar year.

Copyright © 2006 IDG Communications, Inc.

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