SGI stares into the abyss

Bankruptcy appears to be a real option for loss-making Silicon Graphics, as it tries to plan its future

Silicon Graphics (SGI), once a leading light of the supercomputing world, has admitted that its financial situation is so grim that it could be forced into bankruptcy.

In a regulatory filing to the US Securities and Exchange Commission (SEC), SGI warned investors that a restructuring plan and recent loans totalling $50m may not be enough to save it.

"If we are unable to achieve our objectives, we would consider alternatives for ensuring the continued operation of our business. These alternatives could include further reductions in headcount and in the scope of our operations, generating cash from selling or licensing our intellectual property and seeking funding from marketing partners and government customers," said SGI in its filing.

SGI also suggested that it could be taken over by another company.

"If we fail to implement one or more of these alternatives successfully and we have a significant shortfall against our fiscal 2006 operating plan, we could be forced to seek protection under bankruptcy laws," SGI added.

In the three months to 31 December, 2005, SGI made a loss of $28m on total revenues of $144.4 million, compared to a loss of $9m on revenues of $223 million in the same quarter in 2004.

As reported last November, SGI was forced to delist from the New York Stock Exchange after its shares were continually valued below $1 for a prolonged period.

In the 1980s and 1990s, SGI enjoyed great success through its graphical display workstations. Some analysts have blamed its decline on its decision to use Intel's Itanium chip in its systems, before it became clear that the Itanium would ship later and be less powerful than expected.

But SGI was also a victim of the growth in power of the standard desktop machine, which has meant there is less demand for specialist computers for graphical work.