Silicon Graphics International (SGI) handles computing on a large scale. The company provides high-performance computer servers that are based on the Linux operating system and designed for large-scale data center deployments. SGI also offers data storage servers, as well as modular data center systems sold under the ICE brand. Its equipment is tailored to quickly access, analyze, process, manage, visualize, and store large amounts of data. SGI targets the IT, Internet, financial services, government, and electronics sectors, as well as scientific community. Clients have included Amazon.com (18% of sales in 2014), Microsoft, Yahoo!, and Deutsche Bank; the US federal government is also a top client.
While 67% of SGI's sales come from of its core hardware business, the company's services unit, accounted for 29% of sales in 2014, with the combined product and service segment at 4%. The service segment focuses on technical services such as hardware and software maintenance, system installation, configuration, spares management, site preparation, technical training, as well as software upgrades and updates. Additionally, the division offers such professional services as consulting, systems design, and support, as well as on-site staffing for customers in need of more hands-on technical assistance.
About 52% of SGI’s revenue is from customers outside the US. Overall, the Americas (North America and South America) accounted for 52% of SGI’s sales, but sales dropped about 44% from 2013 to 2014. Sales were also off in Europe (22% of revenue), down 13.5%, but sales rose 2% in the Asia-Pacific region and Japan (24% of revenue). SGI is based in Milpitas, California, and conducts assembly and testing at a plant in Chippewa Falls, Wisconsin. SGI’s offices in Japan, France, Germany, and the UK are used for sales, services, research and development, and administration.
Sales and Marketing
SGI has more than 6,500 customers, who it reaches through a direct sales force in nearly 20 countries and a network of resellers and distributors.
SGI’s revenue dropped 31% to about $530 million in 2014 (ended June) from $767 million in 2013. The sharp decline was attributed to reduced sales of SGI’s legacy cloud product, a low-margin business from which it is withdrawing. The company also was affected by a freeze in spending by the federal government in the US before the shutdown in October 2013 (SGI’s 2014 first quarter). Revenue from federal agencies was $203 million, off 28% from the year before. Direct sales to federal agencies made up 18% of SGI revenue in 2014.
The reduction in legacy system sales and government sales deepened SGI’s net loss of about $53 million in 2014, compared to a $2.8 million net loss in 2013. The company also recorded a tax benefit of $12.6 million in 2013 as well as higher asset impairment and excess and obsolete inventory charges. SGI has posted net losses since 2007.
Cash flow from operations was negative $33 million in 2014, down from positive $76 million in 2013. In 2014, SGI’s cash flow was affected by decreases in inventory, deferred cost of revenue, as well as an increase in accounts payable and other liabilities. There also were decreases in deferred revenue, accrued compensation, and increase in accounts receivable as well as prepaid and other assets for payments to suppliers and vendors.
SGI is moving away from it older cloud computing business and directing its attention and resources to areas that should bring higher margins. Those areas include High Performance Computing, High Performance Data Analytics, storage, and services. The company will expand its business in several vertical markets, including weather and climate; physical sciences; life sciences; energy, aerospace and automotive; financial services; Internet; and media and entertainment.
SGI is looking for opportunities with its ICE X product. A distributed memory supercomputer, it can achieve more than 190 teraflops per rack and expand to tens of thousands of nodes from 36 nodes. ICE X systems have been installed at NASA-Ames, oil company Total in France, and the US Air Force Research Lab in Ohio.
Another area of emphasis is SGI’s system for running SAP’s HANA platform. The system uses SGI’s in-memory technology (in which information is stored on the random access memory of servers instead of databases) for real-time transactional and analytical processing for big businesses. The system will be used by life science company Sigma-Aldrich for its SAP HANA-based environment, which will help employees to better analyze and manage its 270,000 chemicals, biochemicals and other products.
Mergers and Acquisitions
SGI expanded its offerings in storage with its 2103 acquisition of parts of FileTek, which sells high performance data analytics storage virtualization, large-scale data management, and active archive systems. SGI paid about $9.2 million in cash for FileTek’s StorHouse and Trusted Edge software, engineering team, and services and support resources. With the acquisition, SGI expands its storage products for managing data assets efficiently and lowers the cost and administration of high-volume storage.
The company took its current form when Rackable Systems bought the assets of high-performance computer pioneer Silicon Graphics, Inc. (SGI) for $42.5 million in cash in 2009. Rackable expanded its product line, customer base, and geographic reach with the acquisition, and the company adopted the better-known SGI brand in an effort to tap a larger global market. Uniquely for a computer maker, the company performs all of its manufacturing, assembly, and testing at a facility in the US.