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October 29, 1997updated 03 Sep 2016 11:31am

1,000 JOBS AXED, MCCRACKEN TO GO: WHAT DOES SGI WANT TO BE?

By CBR Staff Writer

Silicon Graphics Inc chairman and CEO Ed McCracken has paid the ultimate price for not building on the company’s initial promise and is to step down once a replacement is found as part of an expected restructuring which sees pink slips going to as many as 1,000 of SGI’s 11,000 employees (CI No 3,277). SGI will take a charge of $50m in its current quarter to cover the costs. Robert Ewald, former chief executive of SGI’s $750m Cray Research Inc acquisition and currently head of the computer systems business steps up to assume the role of COO, though with responsibility for product development, manufacturing, sales and marketing it looks like a de facto CEO’s job. The president and COO positions have been vacant since Tom Jermoluk went off to internet start-up @home Networks last year. Sales and marketing, blamed for much of the company’s recent woes, including SGI’s latest $56m loss, is expected to be hit hard in the restructuring. EVP worldwide field operations Gary Lauer is axed. In some sense SGI has been a victim of its own success; it has never managed to deliver consistently on its initial promise quite like Sun Microsystems Inc, on whose coat-tails it has ridden to a certain extent. And Wall Street has punished for that. To be sure, McCracken is no McNealy, but then McCracken has lost key executives around him and has never really found replacements. McCracken joined SGI when it was a 100-person graphics shop in 1984. Mentor Jim Clark who founded the company two years earlier left to found Netscape Communication Corp and right-hand man Jermoluk departed soon after. A succession of well-publicized scandals has rocked the company recently, including McCracken’s divorce and relationship with a younger employee.

Grow up

SGI experienced rapid growth followed the acquisition of its chip supplier Mips Technologies Inc in 1992 and graphics software companies Alias Research Inc and Wavefront Technologies Inc in 1995. But by 1996, when SGI stumped up $750m for ailing supercomputer concern Cray Research Inc the bubble had burst. $3.66bn revenue in 1997 was up just 7% on 1996 and profits were down from $114.5m to $78m. SGI even sold-off Cray’s high-end Unix server business to Sun. Despite its use of Sun’s Sparc chip, that business could have been a route to commercial opportunities for SGI, which has never been to win any mindshare as a strategic computing company like Sun, HP, IBM or even DEC. SGI has not really been able to evolve beyond its basic strengths; good graphics, even make films with the computers, but don’t run your business on them. Indeed during the company’s heyday in the early 1990s McCracken used to boast his company built computers to make money, not to count money. Now SGI’s coveted low-end Unix workstation business is under attack from Windows NT – it’s even going so far as to do a WinTel box itself. SGI’s new ccNUMA architecture is seen as a ray of hope if used as part a wideband server campaign that can trade on the company’s ‘hotbox’ credentials. The question McCracken’s successor must address is what exactly does SGI want to be if it can grow up?

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