SGI declares bankruptcy amid revamp

High-performance computing vendor Silicon Graphics Inc. Monday filed for Chapter 11 bankruptcy protection as it continues recent efforts to revamp itself and regain profitability. In an announcement, the Mountain View, Calif.-based company also said it has reached an agreement with major lenders to reduce its debt by approximately US$250 million as part of the restructuring.

SGI also released preliminary third-quarter financial results, reporting revenue of $108 million for the three months that ended March 31. That compares to revenue of $144 million in the previous quarter and $159 million in the same quarter a year earlier. On a Generally Accepted Accounting Basis, SGI’s net loss for the quarter was $43 million, or $0.16 per share, compared to a net loss of $45 million, or $0.17 per share, in the same quarter in 2005, according to the preliminary figures.

SGI said its non-U.S. subsidiaries, including those in Europe, Canada, Mexico, South America and in the Asia-Pacific region, are not included in the bankruptcy filing and will not be subject to the requirements of Chapter 11. SGI said it plans to emerge from bankruptcy within six months.

“We want to assure our customers, our employees and our communities that SGI is operating, business as usual,” SGI Chairman and CEO Dennis McKenna said in a statement. “Our customers can continue to rely on SGI for its mission-critical products, services and support.”

McKenna became CEO, president and chairman of the board of SGI in late January, when he succeeded Robert Bishop, who remains on the board of directors. McKenna was formerly the CEO of privately-held SCP Global Technologies Inc. in Boise, Idaho.

Since beginning its reorganization earlier this year, SGI said it has completed a program that will save $50 million in the short term and another $100 million annually over the long term. The company also said that it has improved the efficiency of its manufacturing operations and has expanded its product road map.

One SGI system user is Brian Ropers-Huilman, director of High Performance Computing at Louisiana State University in Baton Rouge. About a year ago, the university purchased a Prism Extreme visualization system with 32-processors from SGI.

“Obviously, I’m going to have concerns over future support,” said Ropers-Huilman, who noted that his SGI system has specialized support needs only available through the company.

“I don’t feel that they are going to flat-out abandon their customers at this point,” said Ropers-Huilman. “I have to believe that they are going to have a strategy.”

SGI has many academic and research users, but the company’s technology is used at many compute-intensive companies such as Ford Motor Co., which last year purchased SGI storage and computer systems for three of its research centers, according to SGI.

Charles King, an analyst at Pund-IT in Hayward, Calif., said many of SGI’s high-performance customers may have the skills in-house to maintain the systems. He also believes that there are enough SGI customers to encourage third-party support.

SGI’s largest customers may be government-related. For instance, the National Aeronautics and Space Administration is using an SGI Altix supercluster supercomputer named Columbia — so named to honor the space shuttle astronauts — made up of 10,240 Itanium 2 processors.

The SGI Worldwide User Group is scheduled to meet in Las Vegas beginning June 5.

The bankruptcy filing is a key part of the strategy to make SGI healthy again, McKenna said.

“This is a necessary and responsible step that will strengthen the company and foster a sustained turnaround at SGI,” he said. “We expect to proceed quickly and will emerge from these proceedings with a significantly improved balance sheet and, as a result, greater operating flexibility. I am confident in SGI’s future. The new direction I have set is comprehensive, the product portfolio we will unveil is expansive, and our dedication to customer satisfaction is unwavering.”

The bankruptcy filings were made Monday in the U.S. Bankruptcy Court for the Southern District of New York.

“We regret the effect that this will have on SGI’s shareholders and other unsecured creditors,” McKenna said. “SGI plays a critical role in the world’s infrastructure. This needs to be preserved.”

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