The decline and fall of Linux Networx Inc. (LNXI) may serve as a cautionary tale to other struggling HPC vendors. It’s not that the demise of the company was unforeseen. It had become apparent that the company had stagnated after a series of big wins in 2005 and 2006. When LNXI was a no-show at the Supercomputer Conference (SC07) in Reno, it was pretty clear that the company was in trouble. And over the last six months, Linux Networx had become increasingly sensitive about how the company was portrayed in the press. Paranoia is never a good sign. (Memo to vendors: Never let them see you sweat.)

So what happened to the feel-good HPC cluster vendor of 2000-2006? Certainly, the increased competition from larger, more established companies was a factor. As tier one vendors like HP and IBM moved in with their own cluster computing portfolios, they were able to wield a lot of brand power against their smaller rivals. According to IDC, IBM and HP alone captured two thirds of the $11.6 billion HPC server market. Of course, that still leaves a pretty good-sized chunk for other vendors.

But competition for the remaining slice of the pie is fierce. In October 2007, when Appro was awarded the $26.1 million contract to deliver capacity computing to the three NNSA ASC labs (Lawrence Livermore National Laboratory, Los Alamos National Laboratory and Sandia National Laboratories), the deal effectively closed the door on all other cluster vendors at those labs for the next two years. Linux Networx was almost certainly a bidder for that contract. If large mega-deals like this one become the norm, it will be feast or famine for smaller vendors. The NNSA had good reasons to make a big one time investment in their computing capacity, but over the long term this strategy may limit their choice of future vendors. Considering the fate of Linux Networx, it already has.

But it’s likely that Linux Networx was not destined to survive anyway. The resurrection of SGI may have been the final straw that broke Linux Networx’ back. When SGI emerged from bankruptcy in 2006, LNXI was faced with a resurgent competitor with fresh funding, an established HPC brand, and a new product portfolio aimed squarely at Linux Networx customers. The fact the SGI has now acquired the company’s assets is bitter irony, especially considering that SGI’s current CEO, Bo Ewald, was at the helm of Linux Networx up until April 2007.

Last week, SGI and Linux Networx’ major investors (Oak Investment Partners and Lehman Brothers) negotiated to exchange specific company assets for SGI stock. Those assets included system management software products, intellectual property and intellectual property rights. According to the SEC filing, SGI transferred 390,000 shares of stock to the investors in exchange for the those assets. At the current value of $17/share, this works out to a sale price of $6,630,000.

A number of senior LNXI people have joined their former competitor. LNXI CTO Dave Morton will now work under Dave Perry, SGI’s product general manager. Dave “Sunny” Sundstrom, who ran the service organization at LNXI, will support that effort at SGI. Bobbi Hazzard, LNXI’s SVP of sales and channels, will also come onboard in a sales capacity. SGI also offered employment to a number of other “key” Linux Networx people, but it’s likely that the majority — probably around 60-70 percent — of the 140 or so LNXI employees are now without a job.

As far as the products themselves, SGI does not intend to offer Linux Networx cluster systems, presumably since the overlap with SGI’s portfolio would be confusing to customers and expensive to support. A letter to LNXI customers obtained by insideHPC states that SGI is under no obligation to honor current LNXI service contracts, but will try to accommodate customers on a case-by-case basis. In a conversation this week, Ewald told me that over the long term, SGI would like to transition current LNXI customers to their own Altix XE and ICE cluster lines.

“We have systems that are every bit as good as the Linux Networx products were, and we hope to switch customers over to our products as we move along,” said Ewald.

SGI will however attempt to leverage some of the intellectual property from the defunct company. Linux Networx was working on its next-generation cluster management software, which, according to Ewald, is a great fit for SGI’s recently announced Industrial Strength Linux Environment (ISLE), so that work will be preserved. In addition, LNXI had a system management tool Clusterworx, which SGI intends to support at existing customer sites and is considering folding into its system management offerings. LNXI also had patents related to cluster system packaging that will now be added to SGI’s own patent portfolio.

At this point, it’s worth contemplating why some other enterprising vendor didn’t buy Linux Networx intact, avoiding the unseemly dissolution of the company. It’s widely assumed that the LNXI investors were shopping the company around. According to an unnamed former LNXI employee, number one on the list of possible buyers was Cray, who had apparently expressed some interest in the company. That combination would have made sense inasmuch as the product lines of the two companies would be complementary. But that deal was not to be. Dell’s name was never brought up, but that would have made a certain amount of sense as well. Dell was reputed to be the system supplier of Linux Networx hardware and could have offered the LNXI software and expertise as part of Dell’s HPC professional services offerings or as value-added pieces to their generic clusters.

The problem with selling a company like Linux Networx is the same problem it had as a business, namely, most of its products weren’t differentiated enough to offer special value to either its customers or its competitors. If there’s general agreement that one vendor has “systems that are every bit as good” as another, then it’s only a matter of time before competition eliminates the weaker company.

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As always, comments about HPCwire are welcomed and encouraged. Write to me, Michael Feldman, at [email protected].