Making Sense of SGI’s Decline

Martin Veitch of CIO UK Magazine reviews the final disposition of Silicon Graphics, acquired for approximately $25 million in cash by Rackable Systems, and tries to make sense of it all.

SGI was no Apple but it had (still has) many loyal fans. It created crack workstation and server technology, reinventing computer graphics along the way, but also made a series of mistakes and became synonmous with changes in direction and spotty balance sheets. It was a Unix and RISC computing mainstay, had a doomed love affair with Microsoft, fell for Linux and ended up hugging Intel.

It stayed niche too long or it got into commodity too late. Or it didn’t stick to its knitting. Or it was badly managed. You figure it out: it’s just sad to see another great name go.

There’s usually more than one reason why anything goes right or goes wrong. Business success and failure depend on the internal strengths of a company as well as on external factors. That said, I believe that the Silicon Graphics was a victim of its own success. It suffered from a classic case of entrenched player’s dilemma.

SGI had great graphics workstations, ruling Hollywood as well as other simulation-intenstive application environments. That success became a trap, though, when SGI became understandably reluctant to cannibalize its installed base with cheaper, commodity-based Intel-based workstations running Microsoft’s Windows operating system.

Unfortunately for SGI, other vendors were only too willing to chip away at its market dominance with commodity products. They built their businesses on slimmer margins and higher volumes, and they had the supply chains and economies of scale to strike while SGI procrastinated.

In the end, what happened to SGI was an inevitability. Many people within the company saw the threat approaching in the rearview mirror, but they were unable or unwilling to do anything to stop it.

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