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May 27, 2009

Powered Down: SiCortex to Sell Off Assets of Company

by Addison Snell

Following the sudden loss of venture capital funding, HPC system provider SiCortex shut down operations earlier today, according to a well-placed source within the company who wished not to be named. The majority of employees have been laid off, and the company will seek an immediate sale of its assets.

According to the source, the course of action was initiated when one of the five venture capital firms behind SiCortex pulled out because of a lack of available funds. The other four then followed suit.

The five firms that had funded SiCortex were Chevron Technology Ventures, Flagship Ventures, JK&B Capital, Polaris Venture Partners, and Prism VentureWorks. They had previously provided SiCortex with $42 million in funding, most recently in a Series B round in 2006. None of the five firms returned calls for comment.

These developments come at a time of rapid growth for SiCortex, despite the current economic conditions. The company announced record quarterly growth for Q1 2009, with the majority of its business coming from the relatively strong government sector.

According to Tabor Research, worldwide traditional HPC server revenue was $7.5 billion in 2008 and forecasted to fall to $7.0 billion for 2009, with a drop-off in academic endowment funding and lengthening sales cycles in commercial markets outweighing any gains in the government sector.

Since its inception in 2003, Massachusetts-based SiCortex has designed HPC systems with an emphasis on low power consumption. Its differentiated architecture helped turn SiCortex into a high-profile, second-tier HPC vendor. HPCwire named SiCortex an HPC Company to Watch in 2006 and recognized the company with its Editor’s Choice Award for Most Innovative HPC Cluster Solution in 2007.

Despite recent growth, SiCortex had not yet become operationally profitable, so the loss of funding left its management no choice but to lay off employees and stop operations immediately. The company is presently maintaining a skeleton crew dedicated to the support of existing customers and to finding an immediate exit strategy.

Failing a “highly improbable” replacement of the lost venture capital, “we are looking at an as-is asset sale,” said the source. SiCortex would potentially become the third HPC system provider sold in a span of one quarter. Rackable completed its acquisition and brand adoption of SGI earlier this month, and the sale of Sun Microsystems to Oracle is still pending closure.

The fate of SiCortex underscores the wide-ranging effects of a flagging economy, with venture capitalists also feeling the pinch. As more tech companies look for recession-resilient sectors within HPC, those that are venture-funded may find they are reliant on more than just their own growth.

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