Silicon Graphics Restructures Fed Unit

Silicon Graphics Restructures Fed Unit<@VM>Silicon Graphics Inc.

Anthony Robbins

By Nick Wakeman, Staff Writer

Silicon Graphics Inc. has revamped its government unit to bring a better focus and more services to its customers and systems integrator partners and hopefully take advantage of growing opportunities in the public sector market.

"We had an organization that primarily served just a sales function," said Anthony Robbins, who was named president of SGI Federal, which is now a wholly owned subsidiary of Mountain View, Calif.-based Silicon Graphics.

With the reorganization announced in early April, the federal unit now includes not just a sales force, but marketing, support and professional services as well. While SGI always offered those capabilities to its government customers, the non-sales functions reported to other parts of SGI, not to the government unit, Robbins said.

"This is going to give us critical mass in the market to bring more of a focus on our customers, and we'll have the ability to bring more resources," Robbins said.

Creating a government subsidiary is a "natural step," especially for a company that predominantly serves commercial clients but has developed a large government business, he said.

More than 20 percent of SGI's $2.7 billion in 1999 revenue came from government customers. Net income in 1999 was $58 million. On April 5, SGI stock closed at $9.88. Over the past 12 months, it has traded from a low of $6.88 per share to a high of $18.88.

"The government is a very significant part of our business," Robbins said. The government unit has about 400 employees.

With the restructuring, SGI Federal has "subject matter" experts, not just sales people, calling on government customers and working with its systems integrator partners, he said.

The new government unit also reflects a changing marketplace, Robbins said. "It used to be about offering the fastest microprocessor or a system with many microprocessors. But that's not enough anymore," he said.

Now the emphasis from customers is about buying a solution, Robbins said. "You have to know how a system fits into the mission requirements of the customer," he said.

The creation of the federal government unit also is part of a broader move by the company to focus on its core capabilities in computer systems used for scientific, technical and engineering functions.

SGI also recently sold off its Cray vector supercomputer business to Tera Computer Co. of Seattle for $58 million. The technology used in Cray computers and SGI computers is very different and difficult to integrate, analysts said.

"Spending the resources needed to do that would have been counterproductive," said Richard Chu, an analyst with the investment-banking firm SG Cowen Securities of Boston.

The vector supercomputer market also has been shrinking, so it was important for SGI to sell Cray, said analyst Jay Stevens of Buckingham Research Group of New York.

SGI also is working with partners to develop its Windows NT server business rather than develop the business on its own. Under its old model, SGI found itself designing and delivering everything from $3,000 servers to $20 million supercomputers. "You can't do all things for everybody," Robbins said.

"SGI had a lot of moving parts," Chu said. "They are trying to consolidate all those moving parts."

Chu said he expected the government market to continue to be important to SGI because of the need for modeling and simulation and other high-performance computing systems.

SGI faces its toughest competition in both the government and commercial markets from Hewlett-Packard Co. of Palo Alto, Calif., IBM Corp. of Armonk, N.Y., and Sun Microsystems Inc. of Palo Alto, Calif.

Robbins said SGI's federal business is divided evenly among the Defense Department, the intelligence agencies and civilian agencies. Major customers include NASA, the Energy Department, the National Institutes of Health, the national laboratories and the Army, Navy and Air Force.

To reach these customers, SGI will continue to rely on partnerships with major systems integrators, such as The Boeing Co. of Seattle, Lockheed Martin Corp. of Bethesda, Md., Northrop Grumman Corp. of Los Angeles and Raytheon Co. of Lexington, Mass. Robbins estimated that more than 60 percent of SGI's government business comes through partners.

SGI is on the Lockheed Martin team chasing the $500 million Distributed Mission Training contract from the Air Force, which will link flight simulators around the country so pilots in different locations can fly simulated missions together.

SGI also is on the team of L3 Communications Inc. of New York that in November won the $30 million Army Aviation Combined Arms Tactical Trainer-Aviation Reconfigurable Manned Simulator contract.

The role on both of those teams highlights SGI's strength in modeling and simulation, Robbins said.

Although information technology budgets are growing modestly compared with commercial markets, Robbins said the demand for high-performance computing is strong. High-performance computing plays a significant role in areas such as designing aircraft and weapons systems, managing the nuclear stockpile and command and control systems.

Silicon Graphics

Business: Maker of
scientific, technical and

engineering computer systems
Location: Mountain
View, Calif.
Chairman and CEO: Robert
Founded: 1981
1999 Revenue: $2.7
1999 Net Income:
$58 Million
Ticker: SGI on New
York Stock Exchange

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