Restructuring gives SGI high-end focus

The ongoing process of shifting focus to specific growth areas at Silicon Graphics has gained momentum, and the company recently announced a restructuring policy to cut costs and improve performance, says Shipra Arora

Silicon Graphics Inc. (SGI) has revealed its new game plan. The high performance computing and visualisation solutions company has decided to exit non-growth areas and shift focus only to specific growth areas. In the process, the company hopes to save $40 million, and improve its all-round performance during FY2004.

What does this entail for the company globally as well as for its Indian subsidiary? The re-alignment exercise involves clearly defining its market focus, the focus of its sales teams, and the role of its channel partners. According to Avinash Fotedar, director, marketing, Silicon Graphics Systems (India), "Today SGI is looking at what we want to do going forward. SGI will not go back to spreading itself thin, and will be focussed on the high-end only. We are very clear that we are not into commodity and off-the shelf business." However, the cost cuts and elimination of almost 400 positions, i.e. approximately 10 percent of SGI’s employees, which are part of the re-structuring, he confirms will not affect the Indian subsidiary.

The re-structuring exercise has actually been going on for the last two years. The strongest example being the giving up of its Wintel strategy in the workstation and server space with the exit from Windows NT on Intel IA-32 platform almost two years ago. The move largely affected the workstation side, as there was only one server on Windows and Intel IA-32 platform at the time. In addition, SGI has also pulled out of various other non-core activities. This includes spinning off its video streaming software business as an independent entity, and quitting the data mining and visualisation software business almost a year ago. SGI India was at one time even considering buying software firms to do software development. However, all non-core activities are now out of its radar screen.

SGI’s roadmap for both servers and workstations is very clear: It is not considering going back to Windows even in the future. Fotedar says that the earlier decision to quit Windows on the Intel platform was taken because it was not cost-effective and profitable for SGI. There was a period when the company had Intel IA-32 with Windows. However, it was found that this did not fit with SGI’s strategy. SGI as a company was not geared for the commodity kind of business, which is what Windows on a 32-bit processor, was turning out to be. "In this space, a customer’s key consideration is price as opposed to performance, which is an important factor in the 64-bit space. We found that the money put in to sustain our investments was not good enough."

The key area of SGI India’s strategy is going to be the recent Linux initiative on the server side. The SGI Altix family of servers and superclusters is expected to among its top grossers. In fact, over the next one and a half years, the subsidiary is targeting almost 20-25 percent of its overall revenues from Linux initiatives. This is quite ambitious for a five-month-old initiative. This brings SGI to a dual platform strategy in the server space—Irix (the Unix flavour that runs on SGI) on MIPS processors with SGI Origin family and Linux on Intel Itanium 2 processors with SGI Altix family.

SGI is now back with Intel in the 64-bit space, but with the Linux operating system. The SGI Altix family of servers and supercomputers based on Intel Architecture IA-64 with Linux was launched early this year. "The Intel IA-64 and Linux combination has opened up a whole new market for us; potential customers who had stopped buying Unix are looking for a strong platform at a lower cost," explains Fotedar.

Targeted at demanding technical and scientific applications, the system provides for each node running a single Linux operating system with up to 64 Itanium 2 processors and 512 GB of memory. With multiple nodes using SGI built-in cluster interconnect, data is transmitted up to 200 times faster than with conventional clustering methods, enabling SGI Altix 3000 to scale to hundreds and eventually thousands of processors. In terms of verticals, SGI India is largely targeting sciences, government and manufacturing verticals with its Linux initiative. With competition largely coming from industry bigwigs HP, IBM and Sun, the answer for SGI lies in its positioning which addressing the core of its customers’ business—solving their design problems, whether it is designing a car, a drug or even a movie.

The company is waiting for the tide to turn in favour of ‘Linux on workstation’ before embarking upon the initiative. According to Fotedar, the company will be ready to roll out Linux in this space as and when the market for it falls into place and applications on it are ready. Till then, with Windows gone and Linux yet to arrive, the focus will be restricted to the Irix operating system and MIPS processor. However, what will be a significant step as and when the company goes for Linux is that it will bring Intel into SGI’s workstation stable. Explaining SGI’s strategy he says, "The strategy is that MIPS will be the processor with Irix operating system but whenever we go for 64-bit Intel Itanium then it will be Linux." On the other hand in high-end visualisation business, driven by the Onyx line, it is Unix for the time being.

One driver for SGI in its future roadmap will be the storage business. Hitherto considered to be one of the major failings of the company, Fotedar insists that it has been corrected to become a major strength. A small proportion of the overall business last year, storage is expected to start showing significant results in the current year with the company getting ambitious on this front. "We believe that our storage line is now complete, and we are ready to bring our storage solutions aggressively into the market. With this we expect the storage business to become a significant chunk of our overall business," he adds. Another growth driver will be the professional services business, which has grown from base level two years back to its present 15-20 percent share of SGI’s business.

In terms of verticals, the thrust is expected to be on the government (both civil and defence) segment, along with energy and science. Manufacturing is expected to remain almost flat. Some growth will come from the media. Though declining to give details, Fotedar says the company is coming up with something in the broadband space. However, he does concede that being a new product offering, the Linux-based system will get more focus.

After an average growth of over 20 percent in the last three years, this year the company is targeting a growth rate of 25-30 percent.