Silicon Graphics Gets the Rack

"It was the best of times, it was the worst of times" said Dickens, and he could well have been talking about Silicon Valley in 2009 — while some firms are setting up venture capital funds, others are looking for a buoy just to stay afloat. Such is the case for Silicon Graphics, as the once power-player revealed last week it will be sold to Rackable Systems for just half the cost of some of its systems.

Silicon Graphics (SGI) initially filed for Chapter 11 bankruptcy protection early on Wednesday, listing some $526.5 million in debt against $390.5 million in assets, just hours before Rackable announced it would be purchasing the computing legend for just $25 million. SEC filings reveal that SGI intends to use the proceeds of the sale to pay off secured creditors, as the bankruptcy filing constituted a default on those obligations. This is the second Chapter 11 proceeding for SGI — the company filed for protection in May 2006, only to emerge in October of the same year. Poor financial conditions also led to the company's stock being delisted from the New York Stock Exchange in 2005, and from the NASDAQ in December 2008 after its valuation fell below the mandatory $35 million mark.

SGI has a long history in the computing world, and a long history with Open Source. It is among the top ten contributors to the Linux kernel, and was responsible for developing and donating OpenGL, the XFS file system, the SLES-powered Colombia supercomputer, among others. It was at the forefront of high-end machines and graphics — including 3D graphics — for much of the 1990s, and its offerings were part of the standard setup used to create films like Terminator 2 and Jurassic Park. Moreover, the company's systems appear onscreen in a number of films — in Jurassic Park, the system that spawns the quote "This is a Unix system. I know this." is by SGI, while the company's machines also make appearances in Swordfish, Twister, Disclosure, and Lost in Space, among others.

Rackable expects the purchase to be complete within sixty days, barring any unforeseen circumstances — the biggest of those will likely be the United States Bankruptcy Court for the Southern District of New York, which is now firmly in charge of SGI and all of its finances. Rackable has indicated the bankruptcy will continue, though SGI's international operations — which are included in Rackable's purchase — are not included in the bankruptcy. The company's stock price had dropped to $0.18 by the close of trading on Wednesday, from a previous day's close of $0.41 — Rackable's shares dropped to $3.88 from $4.06, but have rallied back to $4.11 as of the closing bell on Friday.