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Rackable Grabs Silicon Graphics for $25M

High performance computing specialist Silicon Graphics (SGI - Get Report) is the latest tech stalwart to buckle under the strain of intense competition and a tough economy.

The server and storage manufacturer filed for Chapter 11 early Wednesday and announced an agreement to sell "substantially all" of its assets to Rackable Systems (RACK) for just $25 million in cash.

Shares of Silicon Graphics plummeted in response to news of its bankruptcy filing and sale. The company's stock, which had already taken a pounding during the last 12 months, plunged 23 cents, or 56.1%, to close at 18 cents Wednesday.

The Sunnyvale, Calif.-based firm became a Silicon Valley success story by selling its high-end gear to movie studios, broadcasters and research labs, but has struggled during the last few years. Even before the global economic slowdown, SGI was already facing stiff competition from rivals such as Hewlett-Packard (HPQ - Get Report), IBM (IBM - Get Report), and Sun Microsystems (JAVA).

Silicon Graphics even spent some months in bankruptcy protection during 2006 in an attempt to get its house in order. The company emerged from Chapter 11 but has continued to wrestle with losses and a heavy debt load.

At least one technology analyst was surprised by Silicon Graphics' bargain-basement price-tag.

"SGI has been having trouble for years so some sort of deal seemed likely, but I was frankly shocked by the $25 million price," wrote Charles King, principal analyst at Pund-IT, in an email to TheStreet.com. "For the equivalent of some VCs' running bar tabs, Rackable acquired a stable of innovative systems that significantly deepens its product offerings and should broaden its customer base."

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HPQ $33.00 -0.20%
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SGI $9.50 1.20%
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