November 23, 1999 5:35 PM PST

SGI abandons key plan for workstations

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SGI has again changed its strategy for workstation computers based on Intel microprocessors, reversing a decision to transfer the division to another company.

The struggling hardware maker announced in August that it would seek a partner to take over its Visual Workstation product line. But in October, SGI admitted it hadn't succeeded.

Now SGI plans to keep the product line under its own roof, but will drastically reduce the refinements it makes to higher-end desktop systems running Intel chips and often Microsoft's Windows NT operating system, Geoff Stedman, SGI's Visual Workstation marketing director, said in an interview. The company has decided to end the life of two Visual Workstation models, the 320 and 540, it said in an SEC filing last week, but SGI will continue selling the products until newer models come along, Stedman said.

"The reality is that you don't have to totally redesign the wheel in some markets," Stedman said. "The new approach going forward will be to embrace more of a standard platform and add value on top of that."

The demise of SGI's 320 and 540 models marks the end of a grand attempt to bring the special-purpose, expensive hardware of the Unix workstation realm into a more price-conscious market. The plan had been touted as a key part of the company's turnaround strategy.

But while the products were well regarded, they were hobbled by delays, manufacturing difficulties and a poorly developed means to distribute and sell the machines, SGI has said.

With the delays, ever-advancing PC technology caught up with SGI's expertise, Stedman said. Intel's new 840 chipset provides most of the internal data transfer speed advantages that SGI worked for more than two years to add to its first Intel-based PC.

Meanwhile, the decision to cancel the two models cost $40 million for the cancellation of manufacturing contracts and $20 million for excess inventory, the company said in a Securities and Exchange Commission filing last week.

SGI's next-generation Intel machines, due in the second quarter of 2000, will limit additions to the graphics card, Stedman said. The company will build the card around a chip from Nvidia designed with the help of about 50 engineers SGI transferred to Nvidia as part of SGI's August reorganization, he said.

Mountain View, Calif.-based SGI acknowledged that all the changes have left potential buyers uncertain. "I still think we have to prove ourselves from an execution standpoint," Stedman said.

It's not the only difficulty SGI has had executing its August reorganization plan. The company also has been trying to sell off its Cray Research supercomputing division for more than three months, but despite having a financial partner for months, negotiations still haven't come to fruition.

As previously reported, SGI also will try to take advantage of the Linux movement with its new Intel-based workstations, Stedman said. The strategy parallels the one SGI is taking with its higher-end servers.

Linux gives "Unix-like capability at much lower price points," he said.

Stedman acknowledged that the software support for Linux workstations is thin right now, but believes it will grow as Linux catches on. Right now, the operating system's use in workstations is popular chiefly in the government and educational markets, where users tend to write their own software, he said. Mechanical design and digital content creation software companies may also be interested in Linux, he said.

SGI will try to give Linux a boost by releasing some of its OpenGL graphics software into the open-source community, Stedman said.

The new machines will be sold largely by resellers instead of by SGI itself, Stedman said. To that end, SGI last week signed a deal with distributor Ingram Micro that's intended to help SGI get the company access to many resellers, companies that typically spruce up, customize and often assemble computers according to customers' preferences.

That method contrasts with the direct sales method preferred by Dell, the company that became the top seller of Intel-based workstations in the third quarter of 1999, according to International Data Corporation (IDC) figures. Dell, with 27 percent of the worldwide market, passed Hewlett-Packard, which had 24 percent.

SGI, while planning eventually to move to Intel chips and the Linux operating system, is keeping its MIPS chip line and Irix version of Unix around through at least 2006.

Next year, SGI will produce successors to the low-end R5000 and the high-end R12000 chips that currently power its Unix-based O2 and Octane workstations, Stedman said.

 

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