A new, improved Silicon Graphics is about to appear, according to chief executive Ed McCracken, who claimed this week that the troubled workstation manufacturer has almost completed a sometimes painful product transition.
"We?ve had some issues with product transition. About 80 per cent of what we?re shipping is new," he said. "But I think we?re coming out the other end. I would expect quarterly growth to be much better than it has been in the last few quarters."
His upbeat prediction came in a week when the company lost two of its most senior executives - chief financial officer Stanley Meresham and senior vice president Michael Ramsay - as part of a wider reorganisation intended to improve the company?s poor track record on getting product into the market.
McCracken conceded: "The transition issues we experienced getting [the new products] out the door exposed the need to concentrate engineering and manufacturing in a single organisation. By bringing those operations together I?m convinced we?ll be able to bring out new products in the future in a timely manner."
Officially Ramsay and Merseman are leaving in order to "pursue outside opportunities", although Silicon Valley sources suggested that their departures owe more to the need to overhaul a managment team that was attracting adverse criticism from Wall Street investors. "Is this a reorganisation or higher management not getting along with McCracken and the company?s strategies?" asked one industry commentator.
Ramsay was the driving force behind SGI?s entertainment business, which accounts for 20 per cent of its revenues. But one investor claimed this unit was a distraction from the company?s core business. "It?s very encouraging to see Ramsay go," he said. "He was the centre of the hollow hype ride of the past few years. Ramsay led ?silicon studio? and the Apple-isation of SGI. He squandered the valuable time and talent of many a good engineer."
The departures are the latest twist in the tale of SGI, a company which it seemed could do no wrong in the early 1990s. But SGI?s stock has been in the doldrums since the company reported an unexpectedly poor third quarter at the end of last month. Although it made a profit of $10.5 million - ending a run of three loss making quarters - this was substantially down on the $53 million profit reported for the comparable period the previous year.
The company?s performance internationally has been weaker than anticipated of late, with Germany, France and Japan causing particular concern. Europe remains a key market for SGI, although it has been sluggish for the past two quarters. In the domestic US market, SGI is reporting revenue growth of 27 per cent year on year; in Europe, this figure falls to four per cent.
In Japan, SGI has found that its potential customers have been less receptive to its products and consequently less likely to buy. This, combined with reduced government spending and currency valuation issues caused by the strength of the dollar, has caused the company to look closely at its future efforts in this market.
The product transition issues referred to by McCracken relate to the company?s efforts to move to its O-series product line - O2, Octane, Origin 200, Origin 2000 and Onyx 2. This process has been hindered by various factors during the past six months. For example, the Octane desktop system?s delivery slipped late in the quarter due to issues with some of its components. But the company is now confident that all five O-products have been introduced successfully and are now ready to ship in volume.
The O2 desktop workstation is now said to be SGI?s fastest selling new product ever, thanks partly to an aggressive pricing strategy. A second quarter sales target of 20,000 units was easily met and shipments increased over 40 per cent between the second and third quarters.
The introduction of O2 has occasioned a change in strategy for the company. The more competitive and cluttered nature of the desktop workstation market means SGI is competing to take market share away from rivals by focusing on price/performance issues.
This sector of the market is also seeing an increasing presence for NT, an operating system that SGI has no immediate plans to support. "Our systems support Unix and it?s the best operating system for people who care about performance," insisted McCracken. SGI claims that O2 can outperform any NT box and with a price of around $6,000, it believes it has a highly competitive offering.
But McCracken did leave himself a get-out clause when he added: "We?re not religious about [Unix]. We think if NT could provide the performance that customers need, we?ll probably integrate it into our product lines. We continue to look at it."
The final component of the O-series was the Octane Desktop System workstation, which was introduced in February. In the last week of the quarter, 1,150 Octanes were shipped to customers. In the next quarter, the company expects the Octane to produce increased momentum in the workstation market and hopes that the adverse reaction caused by shipment delays will fade.
According to research from IDC, the overall workstation market grew by 12 per cent in 1995. SGI is quick to point out that for the same period, its workstation revenues grew 34 per cent allowing it to claim third place in the market rankings after Sun and Hewlett-Packard. In 1996, when growth slowed down, SGI still managed to be the only Unix workstation supplier to increase its revenues.
Expectations for 1997 are high. Inevitably the company hopes to tap into the revenue possibilities of the Internet, predicting that while the departmental Web server market is likely to be dominated by the high end PC supplies, there will be a greater demand for enterprise workstation servers as organisations introduce thin clients. It also expects to benefit from its experience in the fields of 3D graphics and VRML as the need for richer media and data types is fuelled by Internet and Web development.
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