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Computer Maker Silicon Graphics to Lay Off Another 600 Workers

Posted on: Wednesday, 27 August 2003, 06:00 CDT

Aug. 28--For the second time this year, computer maker Silicon Graphics will lay off more workers, cutting 600 employees in its ongoing struggle to lower costs in line with falling revenues.

The 600 jobs amount to 17 percent of SGI's workforce, leaving it with 3,000 employees. In May, the company cut 400. The Mountain View company said it will take a $20 million charge for severance costs.

The decline of SGI represents a fall from grace for a Silicon Valley icon. In 1997, SGI employed more than 11,000 people, including large numbers of workers who were part of its Cray supercomputer business and the MIPS Technologies chip-design business. The change reflects how increasingly powerful personal computers have reduced the need for SGI's graphics supercomputers, which are now relegated to tasks that commodity technology can't yet handle.

The company now employs only about 700 people in Silicon Valley and is moving out of its sprawling headquarters near Shoreline Amphitheater into smaller offices nearby. Search-engine firm Google will sublease the former headquarters campus, a move that SGI said would save money.

Greg Estes, SGI vice president of corporate marketing, said the cuts were necessary to bring expenses in line with revenues. He did not project revenue for the current quarter, but he said the cuts are aimed at making SGI break even at quarterly revenue levels of $235 million to $240 million. SGI is also negotiating to restructure terms of its debt. In July, SGI reported a loss of $36 million on revenue of $240 million for its fiscal fourth quarter.

"We have proven we can make cuts, but revenue is not growing," he said.

SGI has had to cope with declining revenue for years. It recently retooled its product lines and prices in an attempt to stay competitive. SGI launched its Altix 3000 supercomputer earlier this year, using standard equipment for the first time, such as Linux software and up to 128 Intel Itanium 2 processors. Prior machines used SGI's proprietary MIPS processors and Irix software. SGI also launched a graphics computer with 3-D technology from PC supplier ATI Technologies. But where a year ago SGI could charge $250,000 for an Onyx 3000 machine, the newest Onyx 4 sells for $50,000.

Sales of these machines, as well as the storage to go with them, still are strong enough to keep SGI afloat, partly because some customers are locked into using SGI or because they need machines with vast arrays of memory to handle complex calculations such as weather simulations.

SGI has retreated from many markets that made it famous, such as special-effects computers for Hollywood. It now focuses on selling heavy-duty machines to scientists and engineers working in government and defense, scientific computing, manufacturing, media and energy.

"By shifting to Intel and Linux, we can remove concerns from the customer that they would be dependent on us as a sole source," Estes said.

The past year has reflected some of the shift. Government and defense account for 35 percent of the business now, compared with 26 percent a year ago. Energy is also 15 percent of the mix vs. 8 percent a year ago.

By the fourth calendar quarter, SGI estimates the job cuts will reduce costs to $100 million a quarter.

Estes said SGI would continue to expand its product lines as well. In September, the company will introduce a new line of storage equipment that can do a better job of managing storage that goes with servers of other manufacturers, not just SGI machines. On Wednesday, before the layoff announcement, the company's shares closed up 1 cent at 97 cents.

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(c) 2003, San Jose Mercury News, Calif. Distributed by Knight Ridder/Tribune Business News.

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