What led to the Fall of SGI? – Chapter 2
Shortly after I published my SGI Special Edition Podcast, I was contacted by a former SGI Engineer (who preferred to remain Anonymous) with several stories to tell of what happened to SGI. It’s an amazing story full of minor hardware glitches that wound up costing millions, bone-headed oversights during acquisitions, and basic mismanagement of a billion dollar company. The story is far too long and involved for a single post, so I’ll be adding it in chapters over the next few days. So come on inside and witness the saga of what really happened to SGI over the years.. The story has never been told, until now. We’ll begin at the Top:
Chapter 2: The Acquisitions
1. Alias & Wavefront – 1995
In 1995, SGI acquired Alias Research and Wafefront Technologies and merged them into the famous “Alias|Wavefront”. For a graphics company strongly linked to high-end rendering solutions like the kind used in Hollywood, this was an obvious marriage of technologies. SGI provided the hardware resources, and Alias|Wavefront provided the software in Maya. SGI held onto it for nearly 10 years, until in June2004 they sold Alias to a private equity invetment firm Accel-KKR for the paltry sum of $57.1 Million. 
For years Maya has been considered a premiere tool for visualization, and when SGI initially acquired them the software only ran on IRIX. SGI eventually, under the fine leadership of Rick Buzzello, abandoned IRIX for more mainstream systems like Windows, requiring them to port their prize rendering product to the other platforms. SGI’s failure to keep that close tie between the rendering software and hardware, coupled with the introduction of high-end consumer graphics tools from other sources (ATI and NVidia), made Maya an attractive resource for any company to have. Accel-KKR didn’t have to wait long or try hard before Autodesk, owners of 3D Studio Max, took Alias|Wavefront off their hands for $182M in cash just 16 months later. 
2. Cray – 1996
Widely considered one of the most poorly management acquisitions in SGI’s history, SGI bought Cray Research for $740M in February 1996. Again, this was a logical acquisition for SGI, as Cray was a widely successful supercomputer company, with several systems deployed around the world. SGI wanted large supercomputers to supplement their existing rendering systems, and to break into a new profitable market. However, only 3 months later, they sold the CS6400 product to Sun. 
The CS6400 was a Sparc-based supercomputer from Cray that was meant to replace the Cray S-MP. SGI didn’t think very highly of the product, and in face when the engineers were asked how much they thought it was worth, the answer was pretty indicative of their feelings: “it didn’t matter what price they got as it wasn’t worth a shit anyway.” The exact amount of this sale was never disclosed, but our inside source says the number $60M was thrown around alot. When Sun bought the CS6400, they rebadged it as the Sun Ultra Enterprise, and it became the foundation unit of a whole line of (very profitable) servers and workstations for Sun.  Scott McNealy, CEO of Sun, is known to have said that their purchase of the CS6400 was the best investment since Microsoft bought DOS.
But that’s not all that went weird about the Cray Acquisition. SGI was already beginning to show some red in their balance sheets, Cray’s profits were slim. SGI made the decision to operate the two companies almost independently, making it easier to cut Cray if the need arose. Less than 4 years later, they sold the entire company to Tera Computers, giving us the Cray we know today.  But it wasn’t a total loss, as the Cray engineers working at SGI during that 4 years created the trademark of SGI supercomputers: NUMALink.
Another interesting tidbit about this acquisition from our inside source has to do with some of the SGI perks. SGI paid very well back in the mid-90′s, as was the custom during the dot-com boom. When the Cray engineers came over, they all got a very significant pay-raise under the guise of “bringing their pay up to SGI standards”. This made retention figures high, but vastly increased the operating costs of the Cray-under-SGI company. Also, SGI (At the time) offered employees a 6 week sabbatical (paid vacation) for every 4 years of service. During the merger, SGI chose to honor years of service with Cray (nothing special there, many companies do this) but did not place any restrictions on this Sabbatical. That meant that employees with 20 years at Cray, suddenly found themselves eligible to take 6 months of paid leave (20 /4 = 5 sabbaticals, 6weeks * 5 = 30 weeks). It’s no surprise that there was little-t0-no opposition to selling the CS6400 at only 3 months in. Update: Commenters claiming to work for Cray during this period disagree, and claim a single 6-week Sabbatical was offered after 1 year.
3. The Intergraph ZX10
In September 2000, SGI acquired the ZX10 series of workstations and servers from Intergraph computers. SGI had long attempted to build a workstation business, and when they abandoned MIPS processors they decided to buy a division for a quicker start. But the workstations and servers weren’t the only thing they bought, they also got the staff of the Huntville, AL based company that worked on the products. 
The Cray scenario played itself out again, as employees were given the months of sabbaticals from the honored years of service. Intergraph was founded in 1969, so there was plenty of time to go around. This actually worked out in SGI’s favor, however, as that gave them time to spend just over $1M to build out an office suite to house the employees. Unfortunately, the product never took off and the employees were laid off less than 2 months after the construction was completed, all with SGI’s attractive severance packages.
There have been other acquisitions along the way, such as Linux Networks in 2008, but none have had the devastating affects on Morale and the bottom line like these three. Acquisitions don’t make a company tho, for that you have to make product. But not all product works according to plan, and in SGI’s case exceedingly so..
- Be sure to come back and see Chapter 3 : Hardware Problems. You can follow the entire series via the sgi-bts (behind the scenes) Tag.
 Accel-KKR to Acquire Alias from SGI – April 15 2004
 Accel-KKR And Ontario Teachers’ to sell Alias for $182M – Nov 6 2005
 Tera to acquire Cray vector business form SGI - 02 Mar 2000
 SGI sells Cray’s Sparc Superserver business to SUN – 20 May 1995
The views and opinions expressed in this page are strictly those of the author. The contents of this article do not necessarily reflect the views or opinions of VizWorld.com.