Is Silicon Graphics turning the corner?

SGI has sold a massive supercomputer to Stephen Hawking's COSMOS research project, which will become the largest cosmology supercomputer in the UK - but is it just a blip, or is the loss-making company finally turning the corner?

Things have definitely been looking up for SGI, which saw its technology used to create two of 2001's most successful films, Harry Potter and the Sorcerer's Stone and The Lord of the Rings: The Fellowship of the Ring.

The war in Afghanistan is also potentially "good" news for the company, as SGI gets about 20 per cent of its revenue from doing battlefield visualisations for the defence industry.

The events of 11 September, in fact, marked a sea change in the company's share price, which has risen nearly 90 per cent since the attacks.

Some credit for this must go to CEO and Chairman Bob Bishop's programme of savage cost cutting, divesting the company of non-core assets, and generally getting as far away from the main business server market as possible.

He said: "We're only chasing a $20bn market, while IBM, Sun, Compaq and HP are chasing more like a $1tr market. But theirs is basically a commodity manufacturing business, and that market is all going to end up China."

The refocusing of the business has been so far-reaching that only one business, Alias/Wavefront, which makes the company's image rendering software, has escaped the garage sale. But even that is likely to be spun off in the long term.

Bishop told silicon.com: "That is a candidate for being spun off, but the market isn't right for it at the moment."

The extent of the divestures has been overestimated in the press, he said, as the company still owns large parts of MIPS and Cray, including engineers and intellectual property.

The last umbilicus, in fact, that connects SGI to the bunfight of consumer technology is MIPS, the chip architecture which SGI workstations are based on.

MIPS has been losing out to ARM-designed chips in many consumer applications, with Microsoft's decision to support only ARM processors on its Pocket PC 2002 architecture a significant blow.

But SGI insists that this poses no threat to the viability of SGI's workstation roadmap, as the chips for consumer and workstation architectures are on diverging paths, and in fact no longer even use the same instruction sets.

SGI's first big test will come on 22 January, when the company announces its financial results.

The company has told the markets that its cash flow will be neutral this month, an important milestone on the way to profitability.

Stock exchange regulations prevent Bishop from commenting in detail, but he did seem positive: "That's the guidance we've given, and we haven't changed it."