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SGI to axe a quarter of its workforce

Drastic measures follow huge loss, shrinking sales

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SGI most recent results, for its fourth fiscal quarter, may have met the company's expectations but they are still sufficiently poor to force the company to expand its cost-cutting programme - by laying off 1500 staff in addition to the 1000 already sent pink slips.

For the three months to 30 June, SGI lost $69 million a little better than the $76 million it lost this time last year and just ahead of the $70-80 million loss it forecast earlier this month.

However, one-off restructuring expenses took the company into the red to the tune of $232 million (120 cents a share), though even that was better than the year-ago quarter's figure of $614 million (331 cents a share).

Revenue for the quarter came in at $431.5 million, within the $430-440 million range SGI had forecast and down 19 per cent on Q4 2000's $534.1 million.

SGI's plan going forward is simple: cut costs further in the hope of shoring up the loss. The goal is to get the company's break-even point to $375 million. If it can manage that, it expects to see "the benefits" in next December's quarter, Q2 2002.

When it issued its profit warning on 9 July, SGI said it had eliminated some 1000 jobs in Q2. Going forward, CEO Bob Bishop wants to take the company's current (end of June) headcount of 6000 down to 4500, a cut of 25 per cent. The company will presumably take the charge during the current quarter.

And then what? It's hard to see SGI's business doing anything but continuing to contract. Big server sales aren't what they are, and the company is facing increasing challenges in its digital graphics heartland. Apple is working hard to get the key digital effects tools, such as Lightwave and Maya, ported over to Mac OS X, and that's going to make it harder for SGI to sell to the Hollywood studios who make up the core of its user base. ®

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