SGI to acquire Cray in $740M buyout

Silicon Graphics Inc.'s purchase of Cray Research Inc. is bringing sighs of relief among federal supercomputer users who were concerned about Cray's long-term technology leadership.

SGI announced last week that it will purchase Cray for about $740 million in a deal expected to close in April. The move follows a year in which Cray lost $226 million on revenue of $676 million. Cray, founded in 1972, has had close ties to the federal scientific and engineering community.

"I can't see any negatives" to the acquisition, said Gary Smaby, president of the Smaby Group, a consulting firm specializing in supercomputers. "There are obviously some federal agencies who were concerned about Cray's long-term ability to stay at the top of the technology curve. And I think this gives them some comfort that Cray will be able to keep its premier position."

"I think people will be a little more confident to buy Cray stuff now," added one federal supercomputer expert who asked not to be identified. "It obviously is good for people who have Crays and [for] those who were thinking of buying them."

Willy Shih, director of marketing for SGI's Advanced Systems Division, said the acquisition means that Cray will be able to concentrate on high-end machines.

"Cray had been spreading their resources over some of the low-end market," Shih said. "Now they'll be able to focus on their core expertise, which is developing the fastest computers in the world. And that really bodes very well for Defense and security agencies who depend on these computers," he said. SGI has become the dominant player in supercomputers costing less than $1 million, while Cray is the premier supercomputer supplier in supercomputers priced at more than $1 million. "Federal users of supercomputers ought to be pretty happy because I think it combines two very complementary players in the marketplace," Shih said.

Product Overlap?

But Smaby said he believes the combined companies may move to consolidate their product lines. "There may be some confusion about the range of products offered by both companies," in the near future, Smaby said. "There's some question as to which products will survive and which will not. Where you're going to see some consolidation is clearly at the cusp, between the high-end SGI Challenge and the low-end Crays."

SGI launched its supercomputer-class Challenge line in 1993.

Although demand for supercomputers has increased, it has not grown enough in recent years to support the number of companies that design and sell supercomputers exclusively. Analysts contend that cuts in defense and scientific agency spending for supercomputers and the entrance of such larger companies as IBM Corp. into the supercomputing market has put a strain on the specialized vendors.

Kendall Square Research Inc. and Thinking Machines Corp. filed for bankruptcy in the last year. Cray Computer Corp. closed its doors last year, and Convex Computer Corp. was recently purchased by Hewlett-Packard Co.

"By virtue of this acquisition, SGI really makes a strong statement of commitment to the scientific, engineering and technical computing marketplace," Shih said.