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SGI slashes 15 per cent of its workforce

The computers are super - business, not so much

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Supercomputer maker Silicon Graphics announced late last Thursday that it would be slashing 15 per cent of its 1,500-person workforce to lower costs.

In a statement Bo Ewald, SGI's chief executive officer, blamed the recession in the United States, for the layoffs along with the weakened global economy, and the related credit crunch, which are all making SGI's academic and government customers rethink their supercomputer budgets. But Ewald (or at least his speechwriter) put out the requisite optimistic statement to help investors and the remaining employees at the company not lose hope.

"Today's difficult but necessary actions will help us retain some momentum and a stronger, sustainable business model," Ewald explained in that statement. "With a fine-tuned business model, we will be leaner and more focused, and will continue to build on the company cornerstones that we established last year."

In June 2007, SGI embraced x64 parallel clusters and launched an innovative blade form factor, called the Altix ICE line, when it became clear that the company's Linux-Itanium global memory systems, the Altix 4700s, were not going to be the salvation that SGI had originally hoped they would be. While these machines have sold reasonably well, SGI has struggled to grow sales and has lost lots of money.

For the first nine months in 2008, SGI generated $265.7m in sales, but racked up $108.6m in losses. The company's fiscal year ends in June, and the company's revenues for fiscal 2008, at $354.1m, were less than half of the $842m SGI booked five years ago in fiscal 2004 - and back then SGI lost $109.8m that year, too. SGI has lost money every year except in fiscal 2007, and the numbers are a little weird there because SGI went into Chapter 11 bankruptcy in May 2006 and came out of it the following October, and was able to rejig its product lines and financials.

A few days prior to announcing the layoffs, SGI was served a delisting notification from the NASDAQ market where its shares are traded because its market capitalization had slipped below the $35m floor required by the exchange. As we go to press today, SGI's shares are trading at $3 a pop, giving it a market cap of $34.8m. SGI's stock has to get above that $35m level and stay there for ten days or it has to have net income from continuing operations of at least $500,000 in its most recently completed fiscal year (or two out of three of the past fiscal years) to continue trading.

So what will SGI do to try to boost sales and therefore its stock price? Well, the company just announced that it has boosted the global shared memory on the Altix 4700 line to 8 TB. NASA Ames, which has a 2,048-core Itanium machine with 4 TB of memory under control of a single copy of Linux, might be interested in an upgrade.

There are a bunch of other customers that already have 6 TB or 6.5 TB installed, and maybe this larger memory space - which is useful for certain code sets - can attract new customers. But really, this is just more of the same until SGI gets Altix machines using "Tukwila" quad-core Itaniums, with their fast QuickPath Interconnect, into the field.

Interestingly, there has been no confirmation from SGI that it will even ship such boxes when Intel gets Tukwila out the door. SGI might just do machines based on the "Nehalem" Xeons and offer blades that can be configured with dedicated or global shared memory. If I was SGI and I was trying to cut manufacturing costs and boost sales, that is what I would do.

SGI said in its statement that it would "adapt its business plan to today's economic reality" and that it would "eliminate costs that are not aligned with the refined business plan". That could mean almost anything. The real nugget in the statement was that SGI would be trying to shift more sales to the channel, as it has done in Japan and Korea. ®

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