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While IBM & Sun Dither, Rackable Buys SGI

The once-great SGI closed at 41 cents a share Tuesday with a market cap of $4.78 million

Rackable Systems, the large-scale server wannabe, said Wednesday that it's buying the now bankrupt SGI for roughly $25 million in cash plus the assumption of certain liabilities.

The once-great SGI closed at 41 cents a share Tuesday with a market cap of $4.78 million.

Rackable wasn't even conceived of when SGI had its heyday and it's at least spooky that the company founded in 1982 - the same year as Sun Microsystems - by Stanford professor James Clark, who went on to start Netscape, should finally succumb at the moment Sun is rumored to be getting bought by IBM.

Both tortured companies have been stretched out on the same rack for years.

Rackable, which isn't too healthy itself, will be effectively buying SGI out of bankruptcy.

SGI, which just cut 120 jobs, roughly 9% of its workforce, sought Chapter 11 protection in New York Wednesday morning minutes before the acquisition deal was announced.

The Sunnyvale, California company said in its Chapter 11 filing that it had assets worth $390.5 million and total debt of $526.5 million. It listed Voltaire, Intel and Qimonda as its largest creditors.

The deal with Rackable will need the approval of the bankruptcy court but is expected to close in 60 days. SGI's international operations are part of the sale, but not part of the bankruptcy process.

Rackable said the combined business would continue to sell large-scale x86 hardware, software and storage into the newfangled cloud, virtualization, cluster, HPC and Internet markets. It's expecting to get a stronger global services organization out of it.

In a canned statement, Rackable CEO Mark Barrenechea said, "The combined company will be positioned to solve the most demanding business and technology challenges our customers confront today. In addition, this combination gives us the potential for significant operational synergies, a strong balance sheet and positions the combined company for long-term growth and profitability."

Rackable said it suspended its $40 million stock buyback program.

More Stories By Maureen O'Gara

Maureen O'Gara the most read technology reporter for the past 20 years, is the Cloud Computing and Virtualization News Desk editor of SYS-CON Media. She is the publisher of famous "Billygrams" and the editor-in-chief of "Client/Server News" for more than a decade. One of the most respected technology reporters in the business, Maureen can be reached by email at maureen(at)sys-con.com or paperboy(at)g2news.com, and by phone at 516 759-7025. Twitter: @MaureenOGara

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