Silicon Graphics Inc. shares plunged more than 20 percent today after the struggling company said it will cut up to 3,000 jobs and spin off its Cray supercomputer division.
SGI said the cuts and reorganization--the company's third in three years--will help it focus on selling software and computers related to the Internet and exploit the explosive growth of the medium.
Matthew Nordan, an analyst from Forrester Research in Cambridge, Mass., said the changes make "a lot of sense."
"SGI's financial turnaround has been under way for about a year now, but I didn't think they had done enough to really come back," Nordan said. "I was very encouraged by the latest changes."
But investors didn't seem convinced, pushing shares down more than 23 percent, or $3.75, to $12.43 3/4 in trading on the New York Stock Exchange.
SGI, known for high-end computers that simulate reality for training purposes and provide special effects in movies such as "Jurassic Park," bought Cray Research Inc. in 1996 for $740 million.
Since its acquisition by SGI, Cray's supercomputers have competed with SGI's own powerful systems in a limited market including large scientific institutions and the military.
Earlier this year, SGI reorganized and divided Cray off into an easy-to-sell subsidiary. Today's move further breaks Cray into a separate unit. While announcing no buyers, the company will pursue discussions "with potential partners to assume the operation of this business."
In addition, SGI said it will rely on a partner to develop workstations based on the microprocessor chips of Intel Corp. and create a business unit focused entirely on Internet systems that work with SGI computers.
Richard Belluzzo, SGI's chairman and chief executive, said the company will lay off between 1,000 and 1,500 employees. An additional 1,500 employees will be reassigned to partnerships or small companies breaking off from SGI.
SGI has struggled in recent years against stiff competition by workstation makers such as Hewlett-Packard Co., International Business Machines Corp. and Sun Microsystems Inc. It also has been hurt by less-costly workstations and by high-end personal computers using Intel chips and Microsoft's Windows NT operating software.
"The SGI that emerges from these alliances will be somewhat smaller than it is today, but it will be designed to focus on the technologies and markets where we add the most value, to respond more quickly to emerging trends and opportunities, and to put increased resources into serving our major customers," Belluzzo said.
CAPTION: Chairman and CEO Richard Belluzzoannounces SGI's new business plan.