SGI Announces Restructuring

Silicon Graphics, Inc. announced that it is implementing additional actions to lower costs and intensify focus on new High-Performance Computing, Storage and Visualization products. The steps include staff reductions that will bring costs in line with revenue targets for fiscal year 2004. The organizational realignment concentrates resources on developing products exhibiting the greatest growth potential, which include new open source and standards-based elements. The company continues its focus on meeting the unique and demanding needs of technical market customers.



Approximately 600 positions in specific areas will be eliminated in the restructuring. Together with the elimination of approximately 400 positions announced in May 2003, the company's headcount has been reduced by approximately 25% over two quarters. Beginning in the December quarter, the combined effect of these reductions is expected to reduce quarterly GAAP operating expenses to approximately $100 million, with additional reductions in costs of sales. This should enable the company to breakeven at the operating profit level at $235 to $240 million in quarterly revenues, based on currently expected gross margins.



SGI plans to record a charge of approximately $20 million relating to this restructuring activity. This charge will principally consist of severance costs paid over the next several months, and as a result does not represent a significant incremental cash expenditure.



The company has experienced early success with its Linux-based SGI Altix line of superclusters and servers, as well as an increase in the adoption of its InfiniteStorage solutions. In July, it heralded a new generation of advanced visualization with the introduction of Silicon Graphics Onyx4 and Silicon Graphics Tezro systems. Moving forward, the company has decided to concentrate more of its next-generation R&D efforts on products based on the Linux operating system and Intel Itanium 2 processors for general purpose technical computing.



Future efforts involving MIPS microprocessors and the IRIX operating system will focus on systems for those customers who demand unique, high-value capabilities. Today, the Origin 3000 line of supercomputing servers is at the heart of specialized applications such as satellite ground stations, weather prediction and real-time simulation; while Onyx visualization systems are used for entertainment special effects, oil reservoir simulation and large model visualization in the automotive industry.



SGI recently announced that it would soon consolidate its Mountain View-based corporate headquarters into a smaller adjacent facility as part of its cost reduction efforts.