SGI, a major supplier of hardware to Hollywood’s visual f/x industry, said Tuesday it will cut 17% of its work force and spin off several divisions to focus on fewer industry segments, stem costly research efforts and pursue new business on the Internet.
The Mountain View-based company, formerly known as Silicon Graphics, made the announcement at Siggraph ’99, the annual computer graphics confab being held through Friday at the Los Angeles Convention Center.
SGI’s announcement marks its second major restructuring effort in 18 months. This time, up to 1,500 jobs will be slashed from a current staff of 9,000. SGI cut 10,286 employees in 1998.
Although not all the details of its new business plan have been worked out, SGI said it will shift away from its low-end design workstations and some multimillion-dollar supercomputers.
As part of the plan, separate business units will be formed for its line of Cray supercomputers, its Visual Workstation line of Windows NT platforms and its MediaBase streaming systems. SGI is in talks with possible partners to take over the Cray operation, of which it hopes to take a minority stake. Cray represents less than 10% of SGI’s overall revenues.
Another key component will be the creation of a unit to spawn new opportunities on the ‘Net. It also pledged its full support of the popular Linux open-source operating system as an alternative to Unix and Microsoft Windows NT for future devices.
“We decided to focus on three market segments we think are very important: high-performance systems, visual computing and broadband Internet systems,” SGI chairman Rick Belluzzo said during a press conference. “We are picking three businesses where we believe we can be a leader.”
SGI has struggled in recent years against competition from Hewlett-Packard, IBM and Sun Microsystems, which have cheaper machines using Intel chips and Microsoft’s Windows NT operating software. SGI said its systems, including the high-performance Onyx 2, will switch over to Intel.
But its troubles have been blamed on a faulty business strategy rather than faulty products. By shifting attention away from less profitable areas, Belluzzo said the company should be able to focus on its large graphics servers and other visualization products.
A marketing alliance with NEC Corp. to sell its high-performance systems in Japan should provide a much-needed boost.
Wall Street was unimpressed with the realignment, sending shares of SGI plunging 23% to close at $12.44, a loss of $3.75. At least one analyst downgraded the stock, saying the strategy would be tough to execute.
“The SGI that emerges from these alliances will be somewhat smaller than it is today,” Belluzo said, “but it will be designed to respond more quickly to emerging trends and opportunities, and to put increased resources into serving our major customers.”