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SGI rejigs financing ahead of possible asset sale

NUMAlink shared memory interconnect not for sale, but could be licensed

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Supercomputer and dense-pack server maker Silicon Graphics has rejiggered its credit facility with Wells Fargo Capital Finance ahead of a possible sale of intellectual property or other assets.

In an 8K filing with the US Securities and Exchange Commission, SGI said that it had amended its credit agreement with Wells Fargo, cutting back its credit facility from $40m down to $25m with a $10m according extension. SGI said that the reduction in the revolving credit facility cuts back on its fees and is more appropriate to the level of borrowing that the company might do. (SGI doesn’t owe any money at all on the credit facility at the moment.)

In exchange for cutting back on the amount of cash it can put on its Wells Fargo credit card (metaphorically speaking), SGI has gotten something very important in return, and this may be the real point of rejigging its credit facility contract.

The amended credit agreement allows SGI to "sell, license or dispose of its intellectual property in the ordinary course of business so long as the assets to be disposed are not material to the operation of the business of the Company and its subsidiaries on a consolidated basis and the Company observes certain other restrictions."

SGI CEO Jorge Titinger, who came on board a year ago, has made no secret that the company has been doing a comprehensive review of its assets and intellectual property to gauge its worth and potential items that it might sell. The company did a slew of low-margin deals, many of them in Europe, that saw Mark Barrenechea leave SGI in December 2011.

Two months later, after SGI did the math and saw how these deals were not very for the bottom line, the company did yet another restructuring in its long history of such maneuvers, and a few weeks later, Titinger took over and tried to limit the damage that the nine deals, worth $87m, did to the company's bottom line.

El Reg had been suggesting that SGI might be tempted to sell off its NUMAlink shared-memory interconnect for Xeon processors from Intel, which is the secret sauce in its UltraViolet 2000 family of clusters, perhaps to Nvidia or Cisco Systems, both of which have server aspirations and neither of which have a high-speed interconnect of their own. The shared memory feature of the NUMAlink interconnect would be very interesting for Cisco.

Nvidia is perhaps the best fit, given its desire to be a player with GPU processors in supercomputers and its "Project Denver" hybrid CPU-GPU chips for servers and PCs. Nvidia had been counting on using the Cray "Aries" butterfly interconnect, now available at the heart of the XC30 "Cascade" supercomputer, in a concept exaflops machine called Echelon. But then Intel, which has its own exascale aspirations, made Cray a $140m offer for the Gemini and Aries interconnect biz, people, and intellectual property: An offer it did not refuse.

With all the talk about the possible sale of the NUMAlink technology, Titinger said in late January, when going over the financial results for its second quarter of fiscal 2013 (a quarter that ended in December), that the valuation process that SGI was doing for all of its intellectual property had "confirmed the strength of the NUMAlink IP in particular" and that this was the company's core asset and one that it intended to hold onto.

Well, that then raises the question: What, if anything, is for sale at SGI? The company has a pretty good portfolio of products, but presumably all of the chip-related IP was spun out with MIPS Technologies a long time ago and are now controlled by Imagination Engineering and AST, which carved up the chip maker and its patent portfolio last November. The MobiRack, ICE Cube, and ICE Cube Air containerized data centers might be an asset that SGI could unload, but probably not for much.

It could be that SGI might want to sell off its half-depth Rackable server business. Ditto for SGI's CloudRack minimalist "cookie-sheet" servers, although these CloudRack machines are looking a little long in the tooth. But the question again is who would want it? All of the tier one players are in love with their own product lines.

It seems unlikely that SGI will back out of the storage business, so InfiniteStorage seems to be safe, and ditto for the file system and backup software that SGI sells.

The company might find a buyer or licensee for some of the IP in these machines and discontinue one or another product, but it is questionable if the money received would be material for a company that expects to generate around $771m, give or take, in fiscal 2013 ending in June.

NUMAlink and expertise in bending metal to make power-efficient servers is pretty much what keeps SGI alive, and it is hard to imagine the company being able to sell off any of it. And this might be the same conclusion that Titinger and his team come to after the IP valuation process is done.

But there is one more interesting possibility. SGI could license NUMAlink to Nvidia for its use in supercomputer clusters based on CPU-GPU hybrids, and perhaps under some kind of recurring revenue model that helps both companies make some money over time and not have Nvidia pay a lump sum up front and SGI lose control. ®

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