Silicon Graphics goes bust for second time

Nearly three years after emerging from Chapter 11 bankruptcy, Silicon Graphics (SGI) has entered protection for the second time.

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Nearly three years after emerging from Chapter 11 bankruptcy, Silicon Graphics (SGI) has entered protection for the second time.

If the first bankruptcy was embarrassing, the second looks as if it could be a terminal humiliation for the company that achieved cultural fame as one of the two platforms used to create famous computer-created films such as Pixar's first Toy Story, in 1995.

Rackable System has now said that it plans to buy the assets of the company for a trifling sum of $25 million (£18.8 million) in cash, and will also assume some of SGI's liabilities. The price is roughly a 15 percent premium to the company's shrunken share price.

The asset sale, which is subject to approval by the bankruptcy court, is expected to close within 60 days. SGI, which had posted a net loss of $49.2 million in the second quarter, will continue operating until the deal closes.

Founded as long ago as 1981 by entrepreneur-engineer and sailing obsessive Jim Clark, who later co-founded browser and dot.com pioneer Netscape, SGI is believed to have $526 million in debts.

The company, which is said to have 1,200 workers, was given a de-listing notice by the NASDAQ technology exchange in recent weeks.

The acquisition will expand Rackable's product portfolio in the high-performance computing (HPC) market, Mark Barrenechea [CQ], Rackable's president and CEO, said yesterday.

Rackable will gain hardware and software technologies related to HPC, allowing it to build systems that can process complex algorithms for scientific computing and other environments. It will also get access to SGI's customers in the government, scientific and academic sectors.

The deal may create some overlap at the lower-end of the HPC market, where Rackable already sells servers based on Intel x86 chips, said George Skaff [CQ], Rackable's vice president of marketing. But SGI has access to organizations such as NASA, while Rackable is stronger in the commercial sectors like the automotive industry.

Rackable will also get SGI's services infrastructure, which extends to about 20 countries and will give Rackable an instant global presence, the company said.

Rackable suspended plans Wednesday to repurchase up to $40 million of its stock. It wants to make better use of the cash with other "strategic opportunities" like the SGI acquisition, Barrenechea said.

Skaff said it would be premature to discuss layoffs since the companies have only just reached an agreement. A transition team is being formed to merge the companies operations.

Additional reporting by Chris Kanaracus, IDG News Service

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