SGI: buying low and heading higher

Contact: Brenon Daly

For any company looking to be acquired by Silicon Graphics, we have this rather unorthodox suggestion for how to position the business: declare bankruptcy. We’re kidding – but only a bit. In just the past 10 months, SGI has picked up two companies in wind-down sales. Last April, server vendor Rackable Systems bought the assets of SGI in a bankruptcy sale.

When the deal closed the following month, Rackable took on the SGI name. However, since then, the company has fashioned a new and improved performance, at least in the view of Wall Street. Shares of SGI – a vendor that had gone Chapter 11 twice under its previous incarnation – are up almost 140% since the combination of Rackable and SGI closed in May. That’s more than four times the return that the Nasdaq has posted during the same period.

On a smaller scale, SGI was back bottom-feeding again last week. The company purchased assets from COPAN Systems for just $2m. As my colleague Simon Robinson pointed out in his report on the deal, COPAN had struggled to get businesses to buy into its vision of massively consolidated storage arrays for data-archiving purposes. The startup, however, didn’t have the same difficulty in getting VCs to buy into it. COPAN had raised around $110m in backing since opening its doors in 2002.

SGI lives on, as Rackable closes deal and takes name

Contact: John Abbott

Rackable Systems has won approval from the bankruptcy courts to acquire Silicon Graphics Inc for $42.5m in cash, as other potential bidders passed on the one-time tech stalwart. And, just as Tera Computer did when it bought the much-better-known Cray in 2000, Rackable has opted to take on the Silicon Graphics name and branding. Rackable Systems becomes Silicon Graphics International, and the brand will be SGI. The Rackable name will survive only as a product moniker.

The higher price – the original offer was just $25m – now includes the equity of SGI’s international subsidiaries and federal systems businesses. The combined companies will have 5,000 customers and 1,350 employees worldwide, though the headcount is expected to shrink fairly rapidly to 1,250. The headquarters will stay in Rackable’s hometown of Fremont, California. Rackable’s current president and CEO Mark Barrenechea will hold the same roles and the board of directors will remain unchanged. However, some SGI executives will join the new management team, including Diane Gibson (senior VP of operations), Eng Lim Goh (senior VP and chief technical officer) and Robert Pette (VP of visualization).

Target customers are medium- and large-scale datacenters and high-performance computing (HPC) firms with Rackable’s x86 cluster compute systems, shared memory clusters, modular systems, storage products, data management software, HPC tools and visualization software. However, Rackable will have to work hard in the current economic climate. While sales were up slightly from the previous quarter, the company’s just-released first-quarter figures showed a year-over-year revenue decline of 34.5% to $44.3m and a loss of $13.4m.