Rackable Buying SGI for $25 Million

Rackable Systems said Wednesday it plans to buy the assets of bankrupt Silicon Graphics (SGI) for roughly US$25 million in cash, and will also assume certain liabilities.

SGI filed for Chapter 11 bankruptcy Wednesday in New York. The asset sale, which is subject to approval by the bankruptcy court, is expected to close within 60 days. SGI, which had posted a net loss of $49.2 million in the second quarter, will continue operating while the deal closes.

The acquisition will expand Rackable's product portfolio in the high-performance computing (HPC) market, Mark Barrenechea, Rackable's president and CEO, said during a conference call.

Rackable will gain hardware and software technologies related to HPC, allowing it to build systems that can process complex algorithms for scientific computing and other environments. It will also get access to SGI's customers in the government, scientific and academic sectors.

The deal may create some overlap at the lower-end of the HPC market, where Rackable already sells servers based on Intel x86 chips, said George Skaff, Rackable's vice president of marketing. But SGI has access to organizations such as NASA, while Rackable is stronger in the commercial sectors.

Rackable will also get SGI's services infrastructure, which extends to about 20 countries and will give Rackable an instant global presence, the company said.

Rackable suspended plans Wednesday to repurchase up to $40 million of its stock. It wants to make better use of the cash with other "strategic opportunities" like the SGI acquisition, Barrenechea said.

Skaff said it would be premature to discuss layoffs since the companies have only just reached an agreement. A transition team is being formed to merge the companies operations.

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