Silicon Graphics Goes Chapter 11

By Mel Duvall  |  Posted 2006-05-09

Silicon Graphics (SGI), the company whose high-end workstations have powered everything from oil and gas reservoir simulators to the computer wizardry behind the Lord of the Rings film series, filed for Chapter 11 bankruptcy protection Monday.

SGI said it has reached a voluntary agreement with its debt holders to trade their debt for equity stakes in the Mountain View, Calif., company. Under the arrangement, bondholders, who are owed about $191 million, will receive a 25% stake in the company.

Monday's announcement was the latest in a long series of moves aimed to save the company, which is facing fierce competition from cheaper and increasingly more powerful personal computers.

Earlier this year, Dennis McKenna, former chief executive of SCP Global Technologies, a maker of semiconductor manufacturing equipment, replaced chief executive Robert Bishop, who had led the company since 1999. In March, SGI cut about 12% of its workforce and hired a new chief financial officer and chief operating officer.

The news offers one more level of uncertainty for chief information officers who are considering whether to continue purchasing servers and workstations from SGI, or look at alternatives. The company's revenues fell in 2005 to $730 million, from $842 million in 2004 and $961 million in 2003. The net loss in 2005 was $76 million, or 29 cents a share, compared to a loss of $100 million in 2004, or 20 cents a share.

Despite slumping sales, the company's high-end machines, which are favored for their ability to render computationally intensive graphics, remain a staple with Hollywood studios and university and corporate research centers. Recent customer wins include Sony; Ascent Media Group, a post-production film and television company based in Burbank, Calif.; PetroChina; and defense contractor Raytheon.