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Silicon Graphics: Silicon Graphics Silicon Graphics: Computers for 3 -D Silicon Graphics, Inc. (SGI) is a manufacturer of high-end computers specifically designed for the rendering and manipulation of three-dimensional images. At a time when computer technology has become increasingly standardized and specialized, SGI has been described as a throwback to an earlier age of computing because the company manufactures its own workstations, central processors and operating software. Although Silicon Graphics workstations are best known for their creation of the stunning cinematic effects seen in many recent Hollywood blockbusters, they are also the tool of choice for a wide range of applications that require the absolute highest level of 3 -D graphic capability. Examples include flight simulation, product design, scientific modeling, Internet graphics and gaming software. A list of Sgi's customers include many of the worlds largest governments and corporations.
Sgi's strong growth over a period of nearly a decade has been based on its production of successively cheaper workstations that embody capabilities previously not available at each given price level. The company has thus been able to create new markets for its products by stimulating new productive applications of 3 -D technology. Although the price of Sgi's lowest-end workstations has fallen to about $ 6, 000, the company has chosen not to take the final step into the highly competitive, low margin market for personal computers (PCs). This strategy has drawn some criticism from analysts and shareholders who question where the markets will be found to fuel the companys future growth. In response to these concerns (and to an associated drop in the valuation of their stock) SGI has begun to move into some consumer markets, producing PC-compatible software and graphics cards.
At the same time, the company continues to cater to its elite market, bringing progressively greater levels of " supercomputer" power to its upper and mid-level users. History and Founding The success of Silicon Graphics has been built upon the technological innovations and business instincts of co-founder Jim Clark. Clark, a Ph. D.
computer scientist, took a four-year appointment at Stanford University for the express purpose of developing a technology that would serve as the basis for a start-up company. Clark left Stanford in 1982, along with some of his colleagues and students, and founded Silicon Graphics. The companys objective was to produce computers that would provide greater 3 -D capability than any existing platform by obtaining more efficient use of computing power. Sgi's technological success was accomplished by the application one of Clarks own innovations, the geometry engine (also known as a graphics engine). The geometry engine is a method of embedding complex algorithms for the generation of 3 -D images onto the hardware of a computer chip. The resulting architecture effectively transfers capability from software to hardware, allowing a computer to almost instantaneously perform complex 3 -D functions that would otherwise require it to read thousands of lines of code.
Sgi's first workstations allowed engineers, designers and artists, for the first time, to pick-up, rotate, and effectively " walk through" complex 3 -D objects on the screen in real time. Clarks describes his own role during the early years of SGI as providing vision and technological knowledge. To manage the day-to-day operation of the company, as well as to implement long term strategy, he hired Ed McCracken in 1984 to serve as CEO. McCracken, a former division president at Hewlett-Packard (HP), was reportedly so anxious to leave his previous employer that he took a very substantial cut in salary in order to join the fledgling SGI. Although McCracken has become known for the freewheeling and casual management style he brought to Silicon Graphics, he has been able to take firm and immediate control of the companys operation and its market strategy. It was McCracken who guided Sgi's move toward lower-priced computers, a formula that would sustain the companys growth for the better part of a decade.
McCracken was also responsible for negotiating a series of fruitful deals and alliances with mega-corporations such as Time-Warner Cable, Nippon Telephone and Telegraph, AT& T and Nintendo. Clark recalls that as a start-up company, Silicon Graphics was not an overnight sensation. It took a good five years of " preaching the gospel of 3 -D graphics" before sales of Sgi's workstations really began to take off. The company placed its first workstation on the market in 1985, and in 1987 introduced its first model with RISC (Reduced Instruction Set Computer) chip technology. RISC is a unique architecture that reduces chip complexity, significantly adding to the efficiency of SGI workstations. The RISC chip used by SGI was manufactured by MIPS Computer systems.
SGI purchased MIPS in 1992, and has manufactured its own RISC chip since that time. Almost immediately following the release of Sgi's first RISC-based system, it was adopted by the US military for the graphic simulation of weapon trajectories. Within a short time, many of the worlds most advanced research and design units had discovered SGI technology. British Aerospace and NASA, for example, use SGI workstations for product design and flight simulation. Boeing Aircraft used SGI technology to essentially " walk through" the on-screen plans for their new 777 aircraft, achieving tolerances of less than a 1000 th of an inch without paper plans. Volkswagen is one of several automobile manufacturers to make similar use of SGI workstations to design its automobiles, as well as to design the process by which they are built.
Beginning in about 1988, when SGI began to place lower-end workstations on the market, the company began a period of steady growth of about 40 percent per year that lasted until the middle of 1995. By then Sgi's annual revenues were in excess of $ 2 billion, and the company employed more than 7, 000 worldwide. Clark resigned in 1994 to found Netscape with Marc Andreessen. McCracken remains as chief executive to guide Silicon Graphics at a time when intense competition, not the least of which comes from his former employer HP, has begun to erode Sgi's market share and threaten the companys growth. Hollywood Meets SGI The best known of Sgi's customers have been the companies that specialize in the production of 3 -D effects for the Hollywood film industry. In the early 1990 s, film makers who often spent millions of dollars on special effects that used extravagant models and stop-action animation discovered what Sgi's 3 -D technology could do.
The result of Sgi's encounter with Hollywood has been the kind of eye-popping effects that were first seen in Jurassic Park, and then in a string of blockbusters including Terminator II, Star Trek, True Lies, Batman Forever, Casper and Toy Story. The technology behind 3 -D effects can be as complex and demanding as the most sophisticated industrial or research applications. The computer generated ghost in Casper, for example, required storage of 27 trillion bytes of data. At the level of capability required to execute such programs, SGI has no equals.
Therefore, the top 3 -D effects production firms in Hollywood and Silicon Valley rely almost exclusively on SGI workstations. In mid 1995, SGI entered into agreements with Lucasfilms Industrial Light and Magic (ILM) and with Stephen Spielberg's, Jeffrey Katzenbergs and David Geffens Dreamworks to jointly develop systems to be used for computer animation. By 1996, between 15 and 20 percent of Sgi's sales came from Hollywood and the animation industry. Strategy for Continuing Growth In accordance with the vision of company founder Jim Clark, and with the concrete strategy executed by Jim McCracken, SGI has succeeded over the years in making advanced 3 -D technology available at an increasingly low price.
This strategy has allowed the company to sustain a high level of growth for nearly a decade by bringing a high level of 3 -D capability to institutions that could not have previously afforded it. But in spite of Clarks one-time ambition to ultimately move into the PC and home market, SGI has elected to stay with its elite, high-margin niche. This has caused some concern among shareholders that SGI will not be able to find the new markets that will be required to sustain growth in an increasingly competitive industry. Beginning around the third quarter of 1995, Sgi's 40 % per year growth began to slow appreciably in the face of sharp competition. Because Sgi's chip and architecture are specifically geared toward 3 -D application, its workstations will continue for some time to offer 3 -D capability superior to any found on general purpose systems. In recent years, however, competitors have begun to offer very high levels of 3 -D capability for a fraction of the cost of even Sgi's lowest-end workstations.
Most PCs now come equipped with advanced 3 -D graphics. At the middle performance level, the two largest manufacturers of high-end workstations, Hewlett Packard and Sun Microsystems, are taking direct aim at Sgi's high-margin business. By stacking two or four Pentium Pro chips in one PC and using relatively cheap software based on Windows NT, their newest systems deliver sufficient capacity to provide a viable alternative for SGI machines costing five times as much. In short, Although SGI remains unsurpassed at almost every level of 3 -D computing, competitors are closing the gap at the low and middle levels by offering products that come progressively closer to SGI quality for a fraction of the price. Even Sgi's most noted customers in Hollywood have told sources they are looking into these alternatives for at least some applications. Some industry experts expect the Windows NT/Pentium Pro machines to continue to narrow the performance gap, leaving Silicon Graphics with a shrinking niche market of those users who need the most advanced graphics capabilities and can afford to pay for it.
Among those who question Sgi's long-term growth potential is company co-founder and former chairman, Jim. Clark. In Clarks words, " they can own the high-end of the market it just isnt a very exciting place to be. " In an effort to find new growth markets, SGI has initiated some forays into consumer markets. The company has formed a consumer products division to build and sell new lines of PC-compatible graphics boards and software, as well as to attempt to build on the success of its Nintendo 64 game machine. At the higher levels of its market, SGI continues to provide more for less to its big institutional customers. Most significant in the latter respect has been Sgi's purchase of Cray Research, the worlds leading manufacturer of supercomputers, for $ 767 million.
Prior to the merger, the two companies together owned almost half of the $ 2 billion scientific and engineering market. SGI hopes economies of scale and the melding of the two companys technologies will help lower the cost of supercomputing power, enabling the company to broaden its market for mid-level professional applications. Although company spokesmen do not expect to realize the full benefits from the integration of the technological standards of the two companies until around the turn of the century, SGI has already used Crays crossbar switch technology a system that facilities rapid connections between memory, central processors, graphics devices and peripherals to increase the performance of their new midrange Octane workstations. At the same time SGI is slashing the prices of their low-end O 2 systems, which have become the fastest-selling products in the companys history. Supercomputers like the Origin 2000, only recently believed to be an endangered species, are presently finding new markets at universities, in manufacturing such as applications for automobile and aerospace plants, in oil and gas exploration, and in weather forecasting. The rapid growth of Asian economies has created an additional market for many of these applications.
SGI and its Cray subsidiary maintain a firm hold on their share of the highest-end supercomputer market. The company has recently sold three Cray systems to the Department of Defense Naval Oceanographic Office, and in October of 1996 sold what was then the worlds most powerful supercomputer to Los Alamos National Laboratory, where it will be used to develop a simulated substitute for underground nuclear testing. SGI has additionally built an emerging business providing computers to be used as servers for corporate intranets. In the rapidly growing intranet market, the company expects to gain a significant advantage during the next few years from the integration of Crays parallel processing technology. Conclusion Following a decade of constant innovation and growth, Silicon Graphics continues to produce some of the worlds most advanced computers in every category except that of the personal computer. Having committed the greater part of its resources to continued domination of the high end of computing, Sgi's success in the coming years depends not only on staying ahead of its competition, but also on the power of the global economy to find new uses and needs for the power premium Sgi's high-level workstations offer.
Considering the rate at which technologies have been developed and put to use in recent years, this seems a plausible, if not a certain, scenario. SOURCES Author not attributed. " Silicon Graphics. Jurassic Pact, " The Economist. March 2, 1996. Author not attributed. " Cray Research Silicon Graphics Wins DOE Award for Worlds Most Powerful Supercomputer, " FDCH Federal Department and Agency Documents. October 10, 1996.
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