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April 10, 2009

How It All Went Wrong for SGI in HPC

Do you know what the saddest part is of Rackable’s attempt to acquire SGI’s assets out of bankruptcy for a paltry $25 million in cash? There would be very little effect on the HPC market as a result. Thanks to a cascading series of problems -- bad marketing, operational misfires, bad technology bets, and ordinary bad luck -- SGI didn’t have much left to lose.

It’s been a long ride down for SGI, and now that it’s finally over, it comes almost as a relief, like when a beloved relative who has been suffering in pain for years with a terminal disease, a mere shadow of former self, finally passes. It gives us one last chance to light candles, join hands, and remember an icon that once exemplified Silicon Valley greatness.

The industry is full of opinions on what went wrong with SGI, and I’ve got my stories too. Before becoming an HPC industry analyst, I worked at SGI myself for a little over six years in product management and product marketing roles in SGI’s server group.

When I joined Silicon Graphics in August 1997, the company appeared on the cover of BusinessWeek magazine. No, not that cover story. People remember SGI being anointed “the Gee-Whiz Company” by BusinessWeek in 1994, but some forget that the same publication announced the company’s downfall only three years later in “The Sad Saga of Silicon Graphics.” Marketing was to blame, along with reckless spending; that much was common knowledge. On both these points, I’d have to agree.

I didn’t witness the most reckless of spending myself -- Silicon Graphics’ final infamous Winterfest party, with its headliners, revelry, and raucous lip-synch contests, was just before my time -- but I can tell you what marketing was doing about our position in HPC. We were killing it as fast as ever we could.

Silicon Graphics’ technology leadership in workstations and servers was widely acknowledged, but our executive leadership suffered from a collective inferiority complex when compared to Sun, Silicon Graphics’ twin sister. (Both companies were founded in the same year, with neighboring headquarters, and they competed in several markets.) Sun was flying high with enterprise servers based on SPARC and Solaris, and we wanted to catch up. The training I was given that first summer directed me to assume, as an inalienable truth, that the market didn’t care about performance. We had to beat Sun with enterprise features, with an emphasis on RAS (reliability, availability, serviceability). I was the IRIX product manager at the time. I could probably still whiteboard the “Cellular IRIX” presentation for you.

You have to give CEO Ed McCracken credit; he wanted the company to be responsive to customer needs, and he listened to marketing. Marketing just blew it. We told engineering to back off on performance and give us RAS. We made “Sun Sucks” bandit videos and rewrote the marketing literature. Instead of taking on Alpha in HPC, we took on Solaris in enterprise. We were destined to fail.

Interestingly, one of the main platforms we competed against, the Sun Ultra Enterprise 10000, was based on technology we had sold to Sun. I’m in the minority opinion in that I don’t think we should have kept the technology for ourselves. I just think we should have gotten more money for it. Probably a lot more.

I should also mention Cray at this point. We owned them, and I worked in the server group. I have to say, I really didn’t know those guys back then. Again, it’s not the purchase I had a problem with, but rather the implementation. We never integrated those teams. The eventual planned merger of the roadmaps got delayed more than a few times. As of this moment, it was slated to come to market in SGI’s Ultraviolet product, which might yet never see the light of day.

The next chapter is well-documented. McCracken was out, and our new CEO was Rick Belluzzo, who was further convinced that volume was the key to success. He put Silicon Graphics’ resources on souped-up PCs -- I was still working on servers, trying to sell our customers IRIX-based systems as Belluzzo told the world we wouldn’t invest in them -- and he boldly announced the plan to the world. He abruptly quit weeks later. He was not popular around the water cooler after that.

Then came Bob Bishop, and I have to tell you, things started to get better, at least with strategy and marketing. It was 1999 when he took over. Bishop loved the big systems, and he brought us back to an HPC strategy. We built excitement in our roadmap. And we made it to what was supposed to be a critical turning point: the launch of Origin 3000 at the end of June 2000.

Reckless spending? Yeah, there was some. The annual sales conference, where we did the internal launch, featured magicians Penn and Teller and motivational speaker Tony Robbins (not to be confused with namesake Anthony Robbins, who ran federal sales), among others, in a supercool tent event set up adjacent to our supercool new buildings, a campus known today as the GooglePlex. Still, it could have been worse.

Bad marketing? I have to say, the NUMAflex messaging was a little off. Not entirely my fault, but by the time everyone had their say, "NUMAflex" represented a suite of tangentially related benefits, only one of which was performance. Still, it could have been worse.

And the launch? What a success. We had enough sales already booked to make our next two quarters. That's when different culprits got us: operations and plain old bad luck.

We'd been shipping O3Ks for only a few weeks - weren't even at full speed yet - when we hit a part outage. It was the ceramic packaging for the chips. We had a single-source supplier, IBM, and there was no ceramic packaging to be had. We went on stop-ship, with the whole backlog of new orders waiting to be fulfilled. It took months. By the time we started the line again, a lot of those sales were gone.

No matter, we had the second punch coming, our first systems based on Itanium chips. First-generation Itanium chips. Anyone here remember Merced? Intel delayed it, then delayed it again, then pulled the plug on it. There went another batch of orders. We retooled for McKinley, also delayed.

We finally got our first Itanium and Linux-based Altix 3000 systems out at LinuxWorld in January 2002. It was a great product, and if I do say so myself, marketing was really ticking. The press was good, we won awards, and everyone knew what we were doing and what the value proposition was. It was just a tough sale.

By 2002, x86 clusters were the norm. Our standard pitches that explained why you shouldn't convert your code to MPI were moot. The codes were MPI, and they weren't coming back. Furthermore, Itanium had marginalized in the market - SGI picked the wrong chip. Back to the drawing board.

The rest is not as interesting, and it's more recent, so you remember it. SGI started working on clusters. Bishop was out, replaced by Dennis McKenna, who guided the company through its first bankruptcy, then Bo Ewald. Under Ewald, SGI purchased the remains of Linux Networx and integrated the software into its own cluster stack, but it was too little too late. Customers had been hurt too many times, and they weren't coming back.

The last five years have been a grind for SGI, and many of us - especially us former employees with purple blood - silently rooted for the company to succeed. "Not dead yet" was the constant diagnosis. Until this month. Now SGI is gone.

What happened? As with any prolonged misery, a lot of things went wrong. If you want my opinion, look at the things we did wrong, and the few we did right, in the six-year span from 1997 to 2003.

But forget about that now. Remember the good times. Remember what you loved about the Gee-Whiz Company. Tell a friend your favorite SGI story, and then listen to someone else's. Have an SGI-style TGIF beer bash and raise a glass to a Silicon Valley icon.

And then bury it, 'cause it's gone.

Posted by Addison Snell - April 10 @ 9:54AM

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Discussion

There are 6 discussion items posted.

Torn between IRIX and Linux
Submitted by Merblich on 04/09/2009 - 9:57PM

I don't have the Crystal Ball, and I don't know how many computer companies which didn't start with Intel based CPUs will be around in 5 / 10 years, but,, SGI had a alot of fights: IRIX vs Linux, MIPS vs Intel, IRIX which wasn't a SVR4.x release, NVidia vs SGI, NUMA vs shared memory, ...

For a single company, it maybe was just trying to move into all possible directions at the same time and resulting in tearing itself apart?

Post #1

How it all went wrong for SGI
Submitted by jmh900 on 04/10/2009 - 7:10PM

In 1996 SGI bought Cray and, collectively, had access to an astonishingly broad and competent set of technologies. I watched from afar (as a Crayon) as the honeymoon faded into something that was not wedded bliss and the arrogance and hubris of Silicon Valley rode roughshod over the conservative and deeply experienced Silicon Prairie.

Leaving aside canceling Cray's vector architecture product and the Alpha-based T3E (Cray's most successful product ever), I think the example that most typifies the ineptitude of SGI's management was selling Cray Business Systems to SUN. Whatever SGI's motives, this was an "audacious" initiative by the SGI executive team. SGI's actions were like placing the business end of a loaded gun in your mouth and inviting your fiercest enemy to pull the trigger - SUN obliged. It is said that when asked for his opinion on the price that SGI might get for the CS6400 product and development team etc, a very senior SGI scientist replied that "it didn't matter what price they got as it wasn't worth a s**t anyway".

Extraordinary days, the most amazing this is that SGI lasted as long as it did.

Post #2

How it went wrong for SGi
Submitted by shawnu on 04/10/2009 - 8:01PM

Nice post, Addison. My career there was a little bit of a mirror of yours, but on graphics. Funny how some of the perspective differs, but how it all converged in the end.

Post #3

How it went wrong for SGi
Submitted by atzanov on 04/29/2009 - 10:37AM

There is only one reason for SGI's fail - bad management. But hey, these executive MBAs were the same "entiteled to be executive" but inept people who destroy GM, Crysler etc.

Post #4

The battleground...
Submitted by rgreen1 on 04/30/2009 - 9:30AM

Good post. I remember joining before the 3000 launch and thinking we were destined to succeed. With about a billion in the bank, the most amazing products, and the phenomenal campus, how could we not succeed?

The graphics story at SGI was quite similar to the HPC story.

You can't forget about the name change from Silicon Graphics to SGI, or the highly unsuccessful acquisition of Alias Wavefront either.

Another battleground was keeping developers and ISVs working on IRIX. With lower volumes, mixed messages, and fewer customers, it was hard to keep applications. Another battle lost.

Maybe Rackable will change their name to SGI so we can live our memories vicariously through another company?

Post #5

SGI, Not Alone
Submitted by EricS on 05/02/2009 - 1:05PM

Addison, SGI made many bone head moves, significantly more then you mentioned. I believe the biggest (and, SGI is not alone in this) is forgetting to look at the history of high tech companies while planning forward looking campaigns.

I went to work at SGI when the late, great Digital Equip. Corp. was acquired by Compaq. Watched the demise of their rival Data General as it was acquired by EMC, on and on.

Great products or technology no longer define business success. Today it's more about picking markets with a sustainable business plan. SGI was strong in graphics and HPC. Missteps and market changes in the graphics segment left only HPC. From a marketing pyramid standpoint, HPC is at the pointy little top, not a big market segment, lots of competitors. And, most of the those competitors have significantly larger commercial markets to shore up their HPC business.

Without a commercial market segment, SGI needed a right-sized organization to stay profitable in HPC. Not an easy thing to do with the commoditization and proliferation of beowulf clusters.

Sun has a different set of issues. Looks like both companies are tracking - from inception to demise.

Post #6

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Addison Snell

Addison Snell is the CEO of InterSect 360 Research

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