SGI Sold to Rackable Systems for $25M, Conditionally

TG Daily ^ | Wednesday, April 01, 2009 | Rick C. Hodgin

[nickcarraway]

Silicon Graphics Inc. (SGI) has reportedly agreed to sell its business to Rackable Systems for $25 million after returning to court today for bankruptcy protection. The sale is conditional upon higher bids offered at auction, and Rackable will also assume a portion of SGI's outstanding debt.

Rackable Systems is server and data-center storage provider that is looking to add SGI's high-performance server systems used in supercomputers to its line of business. The terms of SGI's sale under bankruptcy results in $0.47 per share, which is 15% higher than the stock's closing price on Tuesday.

Rackable Systems is currently facing a financial crisis of its own, having had five consecutive quarterly losses. The purchase is part of CEO Mark Barrenechea's plan to strengthen the company's offerings, by spending 10% of Rackable's cash-on-hand to expand its product offerings as well as sales and service capabilities.

The Wall Street Journal reports on court papers filed by SGI that blame its business difficulties on a bankruptcy filing, and the subsequent challenges it has faced as a result after emerging from bankruptcy in October, 2006.

SGI was comprised of 1200 employees as of March 1, and 14 of its subsidiaries are also in bankruptcy. The company currently has $390.5 million in assets and $526.5 million in debt, some of which Rackable is willing to absorb as part of the hidden purchase price.

As of the most recent Top 500 Supercomputer ranking, SGI held the spot as the vendor with the fifth most systems in the top 500, behind HP, IBM, Cray and Dell. Their highest-performing system includes the #3 supercomputer, Pleiades - SGI Altix ICE 8200EX, Xeon QC 3.0/2.66 GHz (E54xx Harpertowns). The machine contains 51,200 cores, consumes 2 Megawatts and is located at NASA/Ames Research Center/NAS. It delivers a performance of 487 Teraflops max, with 608 Teraflops peak, roughly 44% of the #1 IBM supercomputer, which delivered 1.105 Petaflops, and 46% of the #2 Cray supercomputer, which delivered 1.059 Petaflops.

[nickcarraway]

Ping

[pikachu]

I miss the Indy and the Challenge S that I used to manage. Good hardware but badly run business.

[Frantzie]

SGI was hot stuff during their day. Sad.

[ShadowAce]

I used to work for Linux Networx, which went under and SGI bought most of the remaining assets. Now they're part of Rackable.

[nickcarraway]

SGI bought Cray a while back, but they may have already sold it.

[JRios1968]

Sometimes the jokes write themselves...

[bmwcyle]

ping

[ArrogantBustard]

SGI was always really great hardware, at way too high a price. If you really needed the performance, NOW, you could almost justify the cost ... if not ... HP and Sun would be right there in a few months (on performance), at a lower cost.

[bmwcyle]

It was good equipment and IRIX was a good O/S. They just spent too much of their profits on crap.

[Revolting cat!]

(That's what we called these boxes when the IT Dept bought them for programmers to draw their designs.)

[nickcarraway]

They spent too much money on an elaborate headquarters, now the home of Google.

[ArrogantBustard]

They never quite caught on to the trick of selling cheaply to many ...

[1rudeboy]

I learned one of my first rules of investing here: never let a company change its name (from Silicon Graphics to SGI) for no reason pass without completely bailing-out of its stock. :)

It's all good--I only lost 600 dollars.

[Ernest_at_the_Beach]

Didn’t know that...

[shorty_harris]

The old Silicon Graphics building is now the Computer History Museum.

[bigbob]

No kidding...when I worked on a project there in the late 90s, right at the end of the year they had $20 million worth of crates in a parking lot under armed guard, orders had been pushed out before the end of the year ready to ship. Hiring bonuses for assembly workers then was $3K - they literally could not build the stuff fast enough.

[ThePythonicCow]

SGI bought Cray a while back, but they may have already sold it.

SGI bought Cray in 1996, and sold it to Tera in 2000. Much of the current core of SGI development engineering and manufacturing in Wisconsin and Minnesota came from Cray.

[ThePythonicCow]

They spent too much money on an elaborate headquarters, now the home of Google.

That building wasn't a total loss -- the income from leasing it to Google was a major source of revenue for SGI during some of its recent lean years.

[ThePythonicCow]

The old Silicon Graphics building is now the Computer History Museum.

I wouldn't say "The old SGI building". I'd say one of them, a building that SGI acquired that was closer to the main freeway (on the same street as a major Silicon Valley Microsoft campus) with intentions of using it for marketing.

The main SGI buildings were a mile up the road, away from the freeway, closer to (or most recently right on top of) the Mountain View sanitary land fill.