Silicon Graphics Essay, Research Paper
Silicon Graphics: Computers for 3-D
Silicon Graphics, Inc.
(SGI) is a manufacturer of high-end computers specifically designed for
the rendering and manipulation of three-dimensional images. At a time
when computer technology has become increasingly standardized and specialized,
SGI has been described as a throwback to an earlier age of computing because
the company manufactures its own workstations, central processors and
Although Silicon Graphics workstations are best known
for their creation of the stunning cinematic effects seen in many recent
Hollywood blockbusters, they are also the tool of choice for a wide range
of applications that require the absolute highest level of 3-D graphic
capability. Examples include flight simulation, product design, scientific
modeling, Internet graphics and gaming software. A list of SGI’s
customers include many of the world’s largest governments and corporations.
SGI’s strong growth over a period of nearly a decade
has been based on its production of successively cheaper workstations
that embody capabilities previously not available at each given price
level. The company has thus been able to create new markets for its products
by stimulating new productive applications of 3-D technology.
Although the price of SGI’s lowest-end workstations
has fallen to about $6,000, the company has chosen not to take the final
step into the highly competitive, low margin market for personal computers
(PCs). This strategy has drawn some criticism from analysts and shareholders
who question where the markets will be found to fuel the company’s
future growth. In response to these concerns (and to an associated drop
in the valuation of their stock) SGI has begun to move into some consumer
markets, producing PC-compatible software and graphics cards. At the same
time, the company continues to cater to its elite market, bringing progressively
greater levels of "supercomputer" power to its upper and mid-level
History and Founding
The success of Silicon Graphics has been built upon the
technological innovations and business instincts of co-founder Jim
Clark. Clark, a Ph.D. computer scientist, took a four-year appointment
at Stanford University for the
express purpose of developing a technology that would serve as the basis
for a start-up company. Clark left Stanford in 1982, along with some of
his colleagues and students, and founded Silicon Graphics. The company’s
objective was to produce computers that would provide greater 3-D capability
than any existing platform by obtaining more efficient use of computing
SGI’s technological success was accomplished by the
application one of Clark’s own innovations, the geometry engine (also
known as a graphics engine). The geometry engine is a method of embedding
complex algorithms for the generation of 3-D images onto the hardware
of a computer chip. The resulting architecture effectively transfers capability
from software to hardware, allowing a computer to almost instantaneously
perform complex 3-D functions that would otherwise require it to read
thousands of lines of code. SGI’s first workstations allowed engineers,
designers and artists, for the first time, to pick-up, rotate, and effectively
"walk through" complex 3-D objects on the screen in real time.
Clark’s describes his own role during the early years
of SGI as providing vision and technological knowledge. To manage the
day-to-day operation of the company, as well as to implement long term
strategy, he hired Ed
McCracken in 1984 to serve as CEO. McCracken, a former division president
at Hewlett-Packard (HP), was reportedly so
anxious to leave his previous employer that he took a very substantial
cut in salary in order to join the fledgling SGI. Although McCracken has
become known for the freewheeling and casual management style he brought
to Silicon Graphics, he has been able to take firm and immediate control
of the company’s operation and its market strategy. It was McCracken
who guided SGI’s move toward lower-priced computers, a formula that
would sustain the company’s growth for the better part of a decade.
McCracken was also responsible for negotiating a series of fruitful deals
and alliances with mega-corporations such as Time-Warner
Cable, Nippon Telephone and Telegraph,
AT&T and Nintendo.
Clark recalls that as a start-up company, Silicon Graphics
was not an overnight sensation. It took a good five years of "preaching
the gospel of 3-D graphics" before sales of SGI’s workstations
really began to take off. The company placed its first workstation on
the market in 1985, and in 1987 introduced its first model with RISC (Reduced
Instruction Set Computer) chip technology. RISC is a unique architecture
that reduces chip complexity, significantly adding to the efficiency of
SGI workstations. The RISC chip used by SGI was manufactured by MIPS Computer
systems. SGI purchased MIPS in 1992, and has manufactured its own RISC
chip since that time.
Almost immediately following the release of SGI’s
first RISC-based system, it was adopted by the US military for the graphic
simulation of weapon trajectories. Within a short time, many of the world’s
most advanced research and design units had discovered SGI technology.
British Aerospace and NASA, for example, use SGI workstations for product
design and flight simulation. Boeing Aircraft used SGI technology to essentially
"walk through" the on-screen plans for their new 777 aircraft,
achieving tolerances of less than a 1000th of an inch without paper plans.
Volkswagen is one of several automobile manufacturers to make similar
use of SGI workstations to design its automobiles, as well as to design
the process by which they are built.
Beginning in about 1988, when SGI began to place lower-end
workstations on the market, the company began a period of steady growth
of about 40 percent per year that lasted until the middle of 1995. By
then SGI’s annual revenues were in excess of $2 billion, and the
company employed more than 7,000 worldwide.
Clark resigned in 1994 to found Netscape with Marc
Andreessen. McCracken remains as chief executive to guide Silicon
Graphics at a time when intense competition, not the least of which comes
from his former employer HP, has begun to erode SGI’s market share
and threaten the company’s growth.
Hollywood Meets SGI
The best known of SGI’s customers have been the companies
that specialize in the production of 3-D effects for the Hollywood film
industry. In the early 1990s, film makers who often spent millions of
dollars on special effects that used extravagant models and stop-action
animation discovered what SGI’s 3-D technology could do. The result
of SGI’s encounter with Hollywood has been the kind of eye-popping
effects that were first seen in Jurassic
Park, and then in a string of blockbusters including Terminator
II, Star Trek, True
Story. The technology behind 3-D effects can be as complex and
demanding as the most sophisticated industrial or research applications.
The computer generated ghost in Casper, for example, required storage
of 27 trillion bytes of data. At the level of capability required to execute
such programs, SGI has no equals. Therefore, the top 3-D effects production
firms in Hollywood and Silicon Valley rely almost exclusively on SGI workstations.
In mid 1995, SGI entered into agreements with Lucasfilm’s
Industrial Light and Magic (ILM) and with Stephen
Spielberg’s, Jeffrey Katzenberg’s and David Geffen’s Dreamworks
to jointly develop systems to be used for computer animation. By 1996,
between 15 and 20 percent of SGI’s sales came from Hollywood and
the animation industry.
Strategy for Continuing Growth
In accordance with the vision of company founder Jim Clark,
and with the concrete strategy executed by Jim McCracken, SGI has succeeded
over the years in making advanced 3-D technology available at an increasingly
low price. This strategy has allowed the company to sustain a high level
of growth for nearly a decade by bringing a high level of 3-D capability
to institutions that could not have previously afforded it. But in spite
of Clark’s one-time ambition to ultimately move into the PC and home
market, SGI has elected to stay with its elite, high-margin niche. This
has caused some concern among shareholders that SGI will not be able to
find the new markets that will be required to sustain growth in an increasingly
competitive industry. Beginning around the third quarter of 1995, SGI’s
40% per year growth began to slow appreciably in the face of sharp competition.
Because SGI’s chip and architecture are specifically
geared toward 3-D application, its workstations will continue for some
time to offer 3-D capability superior to any found on general purpose
systems. In recent years, however, competitors have begun to offer very
high levels of 3-D capability for a fraction of the cost of even SGI’s
lowest-end workstations. Most PCs now come equipped with advanced 3-D
graphics. At the middle performance level, the two largest manufacturers
of high-end workstations, Hewlett Packard and Sun
Microsystems, are taking direct aim at SGI’s high-margin business.
By stacking two or four Pentium Pro chips in one PC and using relatively
cheap software based on Windows
NT, their newest systems deliver sufficient capacity to provide a
viable alternative for SGI machines costing five times as much.
In short, Although SGI remains unsurpassed at almost every
level of 3-D computing, competitors are closing the gap at the low and
middle levels by offering products that come progressively closer to SGI
quality for a fraction of the price. Even SGI’s most noted customers
in Hollywood have told sources they are looking into these alternatives
for at least some applications. Some industry experts expect the Windows
NT/Pentium Pro machines to continue to narrow the performance gap, leaving
Silicon Graphics with a shrinking niche market of those users who need
the most advanced graphics capabilities and can afford to pay for it.
Among those who question SGI’s long-term growth potential is company
co-founder and former chairman, Jim. Clark. In Clark’s words, "they
can own the high-end of the market — it just isn’t a very exciting
place to be."
In an effort to find new growth markets, SGI has initiated
some forays into consumer markets. The company has formed a consumer products
division to build and sell new lines of PC-compatible graphics boards
and software, as well as to attempt to build on the success of its Nintendo
64 game machine. At the higher levels of its market, SGI continues to
provide more for less to its big institutional customers.
Most significant in the latter respect has been SGI’s
purchase of Cray Research, the world’s
leading manufacturer of supercomputers, for $767 million. Prior to the
merger, the two companies together owned almost half of the $2 billion
scientific and engineering market. SGI hopes economies of scale and the
melding of the two company’s technologies will help lower the cost
of supercomputing power, enabling the company to broaden its market for
mid-level professional applications. Although company spokesmen do not
expect to realize the full benefits from the integration of the technological
standards of the two companies until around the turn of the century, SGI
has already used Cray’s crossbar switch technology — a system that
facilities rapid connections between memory, central processors, graphics
devices and peripherals — to increase the performance of their new midrange
Octane workstations. At the same time SGI is slashing the prices of their
low-end O2 systems, which have become the fastest-selling products in
the company’s history.
Supercomputers like the Origin 2000, only recently believed
to be an endangered species, are presently finding new markets at universities,
in manufacturing such as applications for automobile and aerospace plants,
in oil and gas exploration, and in weather forecasting. The rapid growth
of Asian economies has created an additional market for many of these
applications. SGI and its Cray subsidiary maintain a firm hold on their
share of the highest-end supercomputer market. The company has recently
sold three Cray systems to the Department of Defense Naval
Oceanographic Office, and in October of 1996 sold what was then the
world’s most powerful supercomputer to Los Alamos National Laboratory,
where it will be used to develop a simulated substitute for underground
SGI has additionally built an emerging business providing
computers to be used as servers for corporate intranets. In the rapidly
growing intranet market, the company expects to gain a significant advantage
during the next few years from the integration of Cray’s parallel
Following a decade of constant innovation and growth,
Silicon Graphics continues to produce some of the world’s most advanced
computers in every category except that of the personal computer.
Having committed the greater part of its resources to
continued domination of the high end of computing, SGI’s success
in the coming years depends not only on staying ahead of its competition,
but also on the power of the global economy to find new uses and needs
for the power premium SGI’s high-level workstations offer. Considering
the rate at which technologies have been developed and put to use in recent
years, this seems a plausible, if not a certain, scenario.
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