FW: FYI: CF Article!!

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Posted by Sarah White on August 05, 1999 at 14:41:44:

The following was forwarded to me by MJI, still at SGI:

Report: SGI to sell off Cray
By Michael Klein
Leader-Telegram staff

SGI plans to sell its Cray Research supercomputer operations, an
industry publication reports.

Quoting anonymous sources within and outside SGI, High Performance
Computing and Communications Week reported that SGI's strategy is to
sell off business under the Cray name so it can focus on its core
servers and graphics workstations.

Analysts and SGI insiders also said they see signs of a sale, and the
company has scheduled a strategy announcement for Tuesday, Aug. 10.

Potential buyers include Compaq Computer Corp. or Sun Microsystems,
HPCC reported. Another scenario would have SGI helping former Cray
managers spin off the company independently, it said.

Another analyst said a large aerospace company or other defense
contractor is a likely buyer, because such a company could benefit from
the supercomputer research and development Cray conducts, HPCC said.

Cray Chief Executive Officer Richard Belluzzo dropped hints about
selling Cray at a teleconference announcing SGI's quarterly earnings a
few weeks ago, said Rich Partridge, an analyst with D.H. Brown
Associates of Port Chester, N.Y.

"Rick Belluzzo repeated frequently that the Cray contribution (to SGI
sales) was less than 10 percent and dropping," Partridge said Monday.
"And he said that SGI needed to focus, to concentrate on its key core

Partridge said he thinks Belluzzo, by downplaying Cray Research's
importance to the company, was preparing analysts for a sale of Cray

Asked about the reports, SGI spokesman John Cristofano said company
officials don't comment on rumor or speculation.

But Cristofano said SGI plans to disclose details of the second phase of

its turnaround strategy on Aug. 10.

SGI makes high-performance computers and graphics workstations. Its
Cray Research division makes supercomputers.

But not much is left of Cray Research.

When SGI purchased Cray in 1996, Cray employed 1,700 people at its
Chippewa Falls hardware development and manufacturing facility.

Since then SGI has laid off many Cray employees, sold off parts of the
former Cray plant in Chippewa Falls to other companies and started
building several SGI products there.

Today SGI employs about 860 in Chippewa Falls, and two-thirds of
them work on SGI rather than Cray products.

The SGI Origin 2000, Origin 200 servers and Onyx 2 workstations are
built in Chippewa Falls, as are several Cray supercomputer models.
Presumably the SGI operations in Chippewa Falls would remain part of
SGI, sources said.

SGI's merger with Cray has been rocky at times; some analysts say SGI
has de-emphasized Cray's traditional mission to make the world's fastest

supercomputers in favor of more profitable products.

But Cray's decline is not all SGI's fault, analysts have said.
Supercomputer sales declined as the power of smaller, cheaper
computers skyrocketed, and the U.S. government cut spending on
high-performance computers with the end of the Cold War.

Partridge said Belluzzo, who's been CEO for a little more than a year,
wants to do something dramatic. "It sounds like something is brewing,"
Partridge said.

According to the HPCC publication, SGI has been offering discounts as
high as 80 percent on Cray machines to win defense contracts because
having trouble keeping its core accounts.

SGI is focusing on building and selling computers that sell in high
volume, rather than the custom-designed supercomputers that Cray
makes for a select group of buyers, Partridge said.

"They don't have the luxury of carrying those parts that were unique and

differentiated, that made them set apart," he said.

Richard Sherman of RCI Ltd., a Minneapolis supercomputer user group,
said Cray employees have told him they can't discuss the company lately,

which would be consistent with a "quiet period" often enforced before
such a merger.

Sherman said if Cray Research obtained some stability and strong
financial backing in a sale, the entire high-performance computing
industry would benefit.

Rebuilding Cray would be challenging, but the company has a good
reputation in the industry and many old loyal customers that could be
regained, Sherman said.

Partridge said some customers, mostly government-funded ones, still
buy the huge, expensive supercomputers Cray builds.

"They're the proverbial `spooks and nukes' kind of projects," he said,
referring to intelligence agencies and defense contracts.

"I think it's a shrinking market, but it's not going to disappear," he
"A solid core is going to continue, but it's not an exciting growth

The question is how Cray's remaining assets would fit into another
company, Partridge said. Although Cray's business is not huge, it's

"I would like to think there's enough remaining of Cray that it could
continue on its own," Partridge said.

Klein can be reached at 833-9204 or (800) 236-7077.

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