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Semiconductor industry

Silicon Graphics Bets on Intel Chips and Microsoft Software

Strategic Insights

— 2 min read

After three years of declining fortunes, Silicon Graphics is placing a big bet on introducing a line of workstations built around Intel chips and Microsoft software. The new machines are expected to be priced lower than Silicon Graphics' home-grown designs but offer similar performance advantages due to their inclusion of the company's own video and graphics circuitry. Analysts are neutral on the shares of Silicon Graphics, citing the company's history of introducing brilliant technology but struggling with product delivery.

Key Takeaways:

  • Silicon Graphics' new workstations, built around Intel chips and Microsoft software, are expected to be priced lower than the company's home-grown designs, starting at $3,395 for the 320 model.
  • The new machines are already late, first promised for the second half of 1998, and will be shipped in the first quarter, with the 540 model expected in the second quarter.
  • Silicon Graphics is adopting a new business model for its Windows-Intel machines, assembling them through Space Contractors Inc., a leading contract manufacturer.
  • The machines will be sold through Silicon Graphics' Web site, direct-sales force, and resellers.
  • Analysts, such as Peter Ffoulkes of Dataquest, are impressed by the potential performance advantages of the new machines, particularly in handling 3D graphics and video data.
  • However, analysts like Steven Milunovich of Merrill Lynch are skeptical about the new machines making a big difference in Silicon Graphics' fortunes, citing the company's history of product delivery issues.
  • Silicon Graphics is expected to report its fiscal second-quarter results on January 26, with analysts surveyed by First Call expecting a loss of 19 cents a share.
  • The company has lost $504 million in the last five quarters and has substantial tangible assets worth more than $7 a share.

Statistics:

  • Silicon Graphics' stock price closed on Friday at $16.3125, up from a 52-week low of $7.375 on October 8.
  • The company's revenue is expected to be $3 billion, with the new machines adding potentially no more than $30 million in annual sales.
  • The stock price has fallen from $45 in 1995 to its current level.
  • Silicon Graphics has lost $504 million in the last five quarters.
  • The company's fiscal second-quarter results are expected on January 26.

Sources:

  • Analyst Peter Ffoulkes, quoted saying "I'm pretty impressed with what I've seen... there's a lot of difference between what S.G.I. is bringing to market and a vanilla Dell machine" [1].
  • Analyst Steven Milunovich, quoted saying "They're late... and while they may be differentiated, the best technology doesn't always win in the market, in fact it often does not win" [1].
  • Analyst Daniel Kunstler, quoted saying "They've got a lot riding on... I'd like to think they've thought long and hard and come up with something that will give them an advantage" [1].
  • Analyst Doug Van Dorsten, quoted saying "That gives you a share price in the low 20's... they've still got a long way to go, but I think they have a shot at it" [1].
  • Dataquest, quoted by Peter Ffoulkes [1].
  • Merrill Lynch, quoted by Steven Milunovich [1].
  • J. P. Morgan, quoted by Daniel Kunstler [1].
  • First Call, quoted by the article [1].
  • Hambrecht & Quist, quoted by Doug Van Dorsten [1].

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