SGI Files For Chapter 11 Bankruptcy Protection

Struggling high-end computing vendor Silicon Graphics Inc. (SGI) on Monday filed for Chapter 11 bankruptcy protection.

Mountain View, Calif.-based SGI said it reached an agreement with all of its major debt holders that would reduce its debt by $250 million as part of the move.

Once a high-flying maker of servers, workstations and visualization systems, SGI has seen its business wane for several years. Most recently, the company was delisted from the New York Stock Exchange for trading below the minimum $1 per share. It now trades on the small-cap OTC Bulletin Board.

SGI said it expects to file its reorganization plan shortly and to emerge from Chapter 11 within six months.

"We want to assure our customers, our employees and our communities that SGI is operating business as usual," recently appointed SGI Chairman and CEO Dennis McKenna said in a statement.

He added: "This is a necessary and responsible step that will strengthen the company and foster a sustained turnaround at SGI. This milestone marks a fundamental and comprehensive change."

Pat Edwards, vice president of sales at Alliance Technology Group, a Hanover, Md.-based solution provider that has worked with SGI for about 18 months, said his company has seen a number of signs pointing to either a Chapter 11 filing or a sale of the company.

SGI had a signficant layoff about 3 months ago, said Edwards. "They took our channel manager, and moved him away from us," he said. "We've had a complete management change three times since we started working with them a- year and a-half ago."

The company laid off about 250, or 12 percent of its workforce, in March.

Edwards said it will be interesting to watch what happens with SGI's customer base, including many "dark sites," or government installations that are shrouded in secrecy. "SGI has a big base of loyal users," he said. "When customers buy SGI, they stick with the company. The problem recently has been getting new accounts."

SGI's non-U.S. subsidiaries--which include European, Canadian, Mexican, South American and Asia-Pacific units--weren't included in the filing, the company said.

SGI also announced updated preliminary earnings for its fiscal third quarter ended March 31. On a GAAP basis, the company projects a loss of $43 million, or 16 cents per share, compared with a loss of $45 million, or 17 cents per share, a year earlier. Gross margin is expected to be 36 percent, compared with 42 percent in the prior quarter and 35 percent a year before.

SGI was founded in 1982 by Jim Clark and Abbey Silverstone. Its initial products were based on Clark's work in the acceleration of three-dimensional images. Clark left a teaching position at Stanford University to launch the company. He later went on to start up Web browser company Netscape.

Last year, SGI launched its first formal channel program, which was aimed at giving solution providers access to the company's direct accounts under a plan to double its business through partners.

Joseph Kovar contributed to this report