Before the Chapter 11 there was a high level of uncertainty around SGI, said McKenna. Customers were saying that we could have the best strategy but how were we going to deal with all of this debt?
While McKenna conceded that employees and customers might find the filing of Chapter 11 bankruptcy protection unsettling, he was adamant that, as we have explained what we are doing and what this all means, we have gone from uncertainty to certainty.
SGI filed bankruptcy protection papers in the US Bankruptcy Court for the Southern District of New York in early May. While the company had not posted an annual profit since 1997, things had come to a head after its third-quarter results came in when it saw a net loss of $43m, on revenue of $108m, down 32% from the year-ago quarter. It was left with $54.3m in cash, $40.6m in short-term restricted investments, and crippling debts.
Since then the company has been focused on cutting costs, renegotiating its debt agreements, and raising cash from divestitures where it can. Earlier this month it filed its Joint Plan of Reorganization, and announced that the court had approved a real estate settlement that saw Google paying SGI $319m to buy SGI’s headquarters property and another building in Mountain View, California, which Google had already been leasing.
The real-estate settlement will reduce its facilities-related cash obligations by $15m to $20m annually beginning in July. Combined with a new financing facility, this provides it with approximately $19m of additional liquidity, the company said.
Asked whether he had any idea that things had become quite so bad financially at SGI before he took the reins in January this year, McKenna said: Hell no, and added, they don’t train you for this kind of thing.
But McKenna said he has helped to turn companies around in the past during his 25-year career in electronic components, semiconductors, and semiconductor capital equipment industries, and that apart from the Chapter 11 process, this turnaround is not so very different.
McKenna said the company is looking to raise additional money either from enforcing some of its numerous patents, or from divestitures. For instance he confirmed that the OpenGL application programming interface for the development of 2D and 3D graphics applications is considered non-core to SGI and that he is open to selling it.
He said though that the intention when spinning off technologies will be to retain a stake in the company in order to recoup some of the profits that technology could deliver in the future: We sold off technologies in the past too easily for a one-time fee, he said.
SGI, founded in 1982 as a maker of graphics display terminals, has largely failed to capitalize on its technology heritage, and lost focus in the nineties when it made a series of, ultimately botched, acquisitions.
In 1995, it bought Alias Research and Wavefront Technologies and merged the companies into AliasWavefront. In February 1996 it bought supercomputer manufacturer Cray Research for $740m, and in September 2000 it acquired the Zx10 series of Windows workstations and servers from Intergraph Computer Systems. Since then Alias and Cray have been sold off again, and the Zx10s discontinued.
My analysis is that we made three acquisitions and ended up selling them, said McKenna. We had six transactions in a relatively short time-frame and that was disruptive. More to the point, we bought high and sold low.
More problems ensued in the late nineties as the company transitioned from its own MIPS processors to the Intel Itanium, which was severely delayed. Despite having ported its clustering technology from its Origin Unix servers to Linux-based servers based on Itanium for its Altix servers since then, it has still failed to regain momentum. It’s also faced stiffer competition from PC-based 3D engines and commodity open source clustering technologies.
