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OpenText lures new CEO from SGI

Barrenechea back to software

The smart choice: opportunity from uncertainty

Supercomputer maker Silicon Graphics has lost its president and CEO, Mark Barrenechea – a longtime executive with a specialty in the software business – to enterprise content management software provider OpenText.

SGI announced last Wednesday morning that Barrenechea would be stepping down at the company, which makes shared memory and cluster servers primarily aimed at supercomputer centers and hyperscale data centers where performance and thermal efficiency are the main concerns.

All that was known on Wednesday morning just after Wall Street opened was that Barrenechea was resigning his posts effective January 1, 2012 to run a "global software company" as its president and CEO. OpenText this morning confirmed that Barrenechea will assume those two roles at OpenText beginning January 2.

OpenText, Silicon Graphics and Barrenechea: a history lesson

John Shackleton, who has been a director at OpenText for the past 13 years and who took over as president and CEO in 2005, pushed the company above the $1bn revenue mark through a combination of acquisitions and organic growth. Shackleton is 64 years old and wants to retire, so OpenText was looking for someone to run it.

Barrenechea was senior vice-president of application development at Oracle and managed the team that brought the Oracle Applications 11i suite to market. After he did that, he became chief technology officer at Computer Associates. Barrenechea was a director at private equity firm Garnett & Helfrich Capital (which ate the switch business from Nortel Networks, turning it into Blade Network Technologies, now a part of IBM), and came to the attention of hyperscale server maker Rackable Systems in late 2006, when he was appointed to its board of directors.

In April 2007, Rackable named Barrenechea president and CEO. This was a significant time for the company since it was two years after Rackable, a maker of exotic power-efficient servers used by online retail giant Amazon as well as other hyperscale web operations, went public and was coming under pressure from Dell and others peddling efficient machines.

Two years later, Barrenechea spearheaded the acquisition of bankrupt supercomputer maker Silicon Graphics, which had a better brand and a larger customer base. The combination of the two companies is the new Silicon Graphics. This marriage has proved fruitful and the new SGI is on track to become a billion-dollar system provider in the next couple of years – and perhaps even one that makes a decent profit, too.

OpenText is located in Waterloo, Ontario, and was founded in 1991 out of that city's university, which had started a project in 1987 to create an online version of the Oxford English Dictionary. Significantly, Tim Bray, who is the developer advocate at Google and who was formerly director of web technologies at Sun Microsystems, was working on the New OED project with Tom Jenkins, who co-founded OpenText with Bray and who is still its chairman and chief strategy officer.

Making content management pay

The content management system and search engine that OpenText created for the New OED was taken commercial, and in 1995 OpenText was the supplier of the search engine behind Yahoo! OpenText began its long line of acquisitions that year and went public on the Toronto Stock Exchange and the NASDAQ the following year, giving it the money to fuel yet more acquisitions. One of the biggies was the $489m purchase of fellow ECM specialist and Canadian software company Hummingbird in August 2006. Another one was this year's $260m acquisition of Global 360, a maker of business process management software.

OpenText had just over $1bn in sales in its fiscal 2011 and brought $123m to the bottom line; it has around 4,400 employees. Revenues and profits have grown more or less steadily in the past five years, despite the Great Recession, and Barrenechea takes the helm of a company that is well-versed in acquisitions and able to deal with them – more or less like his former employers Oracle and CA.

The news of Barrenechea's abrupt departure was not received well by SGI shareholders. The company's shares lost 14 per cent of their value on Wednesday, December 14 when the announcement was made, and are off a total of 25 per cent on Monday morning compared to the closing price of $14.03 on December 13.

SGI appointed Ronald Verdoorn, its chairman, as interim CEO while it conducts a search for a new CEO. Verdoorn reaffirmed SGI's prior fiscal 2012 guidance, which is for sales to be in the range of $740m and $780m - a revenue growth of between 18 and 24 per cent. The company expects earnings per share of between 15 and 30 cents.

On December 7, SGI announced that it had secured a $50m line of credit with Wells Fargo Capital Finance to fund working capital for large system orders, but significantly, on December 14, when Barrenechea's departure was announced, SGI also said that it was withdrawing its shelf registration with the Securities and Exchange Commission to raise $100m through the sale of equities or debt securities. SGI said back in November it was looking for the credit line and was trying to raise funds to do acquisitions and chase new business. The SEC had not yet processed that S-3 registration.

Now might be a good time for Cray and SGI to think about hooking up. ®

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