MicroStrategy, Silicon Graphics Forge Software Pact

By Richard McCafferyStaff WriterOne of the information technology scene's newest partnerships is an odd couple.Silicon Graphics Inc., an established player fighting its way back to profitability, has teamed with MicroStrategy Inc., a fast-growing Wall Street debutante whose net income last quarter soared 642 percent to $942,000.These differences aside, both companies make software that helps businesses and government agencies make better use of data. Silicon Graphics plans to mesh its data mining products and graphical abilities with Micro-Strategy's analytical software.Their plan is to create a complete offering that will allow customers to comb data, ask questions like, 'what products should we sell, how do we improve internal operations, how do we deal with competitors,' and better understand the answers using 3-D graphics. The companies already have a working prototype of the technology and expect to start selling the jointly developed software in the first half of next year. The partnership, which has been in the works for half a year, was announced Oct. 29 The two will focus their sales efforts on data intensive markets such as the federal government, financial services, biotechnology, retail and manufacturing. "The opportunities are everywhere," said Mario Schkolnick, a director of engineering at Silicon Graphics Inc., Mountain View, Calif.MicroStrategy executives expect the new partnership will help the company gain a foothold in the public sector, a market it is entering for the first time.David Hilal, a research analyst at Friedman, Billings, Ramsey & Co. Inc. of Arlington, Va., agreed. One of the best ways to enter a new vertical market is to go through a partner with an established base, Hilal said. "The cross-selling opportunities are enormous.""It's a big partnership for us," said Antonia Hock, MicroStrategy's group product manager for infrastructure products, who added that it's the first of several technology partnerships the company plans to announce in the next few months. "It's a real technical partnership, not just a marketing relationship. We really see this as filling a niche for a large number of our customers," she said.Founded in 1989, MicroStrategy of Vienna, Va., develops online analytical processing (OLAP) software, which allows users to query data for strategic information. The company, which has 700 employees, has more than 500 customers including MCI WorldCom Inc., Bank of America and General Motors.Its most significant federal contract is with the Army and Air Force Exchange Service, which operates a chain of retail stores. The service uses MicroStrategy software to determine which products to stock in its stores.MicroStrategy competes with big and small firms alike. Rivals include Information Advantage Inc., Eden Prairie, Minn.; Arbor Software Corp., Sunnyvale, Calif.; and Oracle Corp., Redwood Shores, Calif.MicroStrategy was one of the Washington region's biggest success stories this year. It sold shares publicly for the first time in June and the price shot to a high of $46 before settling down. The stock closed at $26.87 Nov. 11.Founded in 1982, Silicon Graphics is best known for its high-end workstations and dazzling graphics. But the firm has been developing data mining software for more than three years and has built itself a large customer base, Schkolnick said. The state of Texas, for example, uses the company's data mining product to uncover Medicaid fraud. Other customers include Ford Motor Co., Chase Manhattan Corp., PricewaterhouseCoopers and Procter & Gamble Co.The fifth version of MineSet, its data mining product, was released last summer. MineSet is the flagship product of the company's strategic business applications division.Still, Silicon Graphics has struggled recently as its core Unix workstation and supercomputing businesses have declined. Its net income declined for the third year in a row and the company posted a loss of $460 million for the year that ended June 30. Losses included $390 million in pre-tax restructuring charges. Richard Belluzzo, a longtime executive at Hewlett-Packard Co., joined Silicon Graphics in January with the aim of refocusing its strategy and quickly restoring profitability. The company has cut expenses, introduced a new Windows NT workstation aimed at expanding the company's customer base, and its server business is robust. Silicon Graphics' stock closed Nov. 11 at $13.68.Hock and Schkolnick said OLAP and data mining software go hand in hand, even though few have developed the products jointly. Data mining software takes rough data and finds new relationships within it. OLAP software can then be used to query the data and check findings. "Anybody using a data mining tool will have use for an OLAP tool," Hock said. Executives at Silicon Graphics expect the partnership will help build awareness that the company develops business software along with a line of workstations, servers and supercomputers. The company's edge in the data mining business is its 3-D graphics, Schkolnick said. One of the difficult things about using data mining software lies in interpreting the results. "Our product allows people to get a better understanding of data by visual analysis," Schkolnick said.