Rackable's Plan For Silicon Graphics

Posted by: Peter Burrows on April 1, 2009

I spoke with Rackable CEO Mark Barrenechea an hour or so ago, about the SGI acquisition. While Rackable won’t announce detailed plans until after the bankruptcy process is concluded, he says he fully expects to keep supporting most of SGI’s products. He wouldn’t comment on whether the once-beloved Silicon Graphics name would live on.

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So why buy the world’s sickest computer company, in the middle of what looks to be the worst downturn in computer history? He says that as the economy worsened, he became convinced that Rackable needed to make a move to spark future revenue growth. While Rackable specializes in more commoditized servers used in Internet data centers, SGI sells extremely powerful machines in the so-called high-performance computing market. So rather than sell primarily to the likes of Microsoft and Amazon (who between them were about half the company’s sales last year), Rackable can now sell to the world’s rocket scientists, actual and figurative—defense and intelligence agencies, national labs and other customers who can never get enough compute power. “Our products help power the Internet. Their products help design race cars,” he says. “Together, we’d be positioned to solve the most demanding business and technology challenges there are. This will help us grow beyond the crowd.”

There’s only one problem: SGI isn’t growing. Rackable will get a big stream of revenue from SGI’s services arms (And there’s nothing more profitable in the computer industry, than the maintenance contracts on computer platforms that are no longer being updated and therefore are not consuming much in the way of R&D dollars). But SGI had sales of just $348 million in 2008, after a continual slide from more than a billion in 2002. Barrenechea says the big opportunity is for cross-selling of Rackable’s gear to SGI’s installed base, and vice versa. But how many customers are both running Internet data centers and designing race-cars, forecasting the weather and simulating nuclear blasts.

Evidently, the stock market sees more opportunity for problems, than for growth. RACK shares, already battered by five consecutive quarters in the red, fell 4.4% on the news on a day when most tech stocks rose.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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