Cray Super Computers Targeted For Sell-Off

SAN FRANCISCO -- Silicon Graphics Inc., a struggling pioneer in sophisticated computer graphics and special effects, has announced a major restructuring that will result in the loss of up to 1,500 jobs, or 17 percent of its work force.

The company also said Tuesday it would turn its storied Cray supercomputer unit into a separate company and try to sell it. SGI was never able to grow Cray, acquired for $576 million in 1996.

SGI will also spin off its division that produces computer workstations based on Microsoft's Windows NT operating system; officials declined to name the partner that will soon acquire what may be a majority share of that business.

The Cray and NT-division moves could affect another 1,000 to 1,500 jobs, John Vrolyk, senior vice president, said.

The combination of moves concentrates SGI's strategy on producing machines using the Linux operating system - a free, upstart competitor to Microsoft's Windows NT and Sun Microsystems' Solaris - that has become a leading tool for server computers that run Internet sites and business networks.

Wall Street reacted negatively to the announcements. Shares in Mountain View, California-based SGI lost $3.75 to close at $12.44 on the NYSE, a drop of nearly a quarter of its value.

"They are finally taking some of the bitter pills that they should have taken 18 months ago," said John Jones Jr., an analyst with Soloman Smith Barney in San Francisco. "The problem, and the reason why the stock is acting the way it is: it's another 18-month transition."

Vrolyk acknowledged that beneficial results of the changes may not be apparent for six to 12 months.

Historically, SGI has built the best computers and software for complex and realistic visual effects. Its systems - using the company's proprietary IRIX operating system and special microprocessors tailored for 3D visualization - were used for such ground-breaking films as "Jurassic Park" and "Toy Story." But the top SGI machines cost tens of thousands of dollars.

As less expensive workstations have rapidly become more powerful, the advantages of SGI's systems have eroded - as has its cadre of software developers. Traditional competitors such as Sun and IBM took advantage of the weakness, as did Compaq and Dell.

In response, SGI began to replace its own microprocessors with less-costly alternatives made by Intel Corp., and to use Windows NT for its lower-end machines. But the company still saw its share of workstation market revenues plummet from 10.3 percent in first quarter of 1998 to 8.5 percent in the same period this year, an analyst said.