Rackable Systems to Acquire SGI for $25M Cash

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Data center server and storage vendor Rackable Systems' plan to acquire Silicon Graphics (SGI) comes less than two months after Rackable announced a revitalized channel partner reseller program. Both moves are designed to expand Rackable's markets in a year when hardware sales are contracting.

Data center server and storage vendor Rackable Systems plans to acquire all the assets of once mighty Silicon Graphics for approximately $25 million in cash, Rackable Systems announced Wednesday morning. The announcement coincides with Silicon Graphics filing again for Chapter 11 bankruptcy.

Rackable Systems said in a prepared statement announcing the deal that the combined business will offer customers market-leading hardware and software technology within large-scale x86 cluster computing, high performance computing (HPC), Internet, cloud computing, large-scale data storage environments and virtualization platforms across many verticals and geographies.

Many observers have blamed Silicon Graphic’s bet on Intel’s Itanium processor, rather than an industry-standard x86 platform, for the Silicon Graphics’ decline. 

But executives at both companies expressed their confidence in the deal in prepared statements issued by Rackable Systems.

"The combined company will be positioned to solve the most demanding business and technology challenges our customers confront today," said Mark J. Barrenechea, president and CEO of Rackable Systems, in a prepared statement. "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’s move to acquire Silicon Graphics is only the most recent the company has made this year to expand its existing markets. 

In February, Rackable announced a revitalized channel partner program called the Eco-Partner Channel Program, looking to double the ranks of its channel partners. Rackable’s program was designed to take its technology -- which had been used by large companies such as MSN, Amazon.com, Facebook and YouTube -- to address the SMB market.

To answer that call, Rackable has created a standard set of SKUs for partners to sell, plus they can still configure their own by using the company's configurator. It's the same tool used by Rackable's direct sales force and now patched into the company's partner portal.

In February, Rackable said it had about 20 channel partners and was looking to add 10 to 15 more. To qualify, partners must do $500,000 in sales and hold certain certifications.

Overall, channel partners are expected to do deals that are smaller than the ones the direct sales force does – in the $5 million to $10 million range. However, "If a channel partner brings a deal to us, it will always be their account," George Skaff, vice president of marketing at Rackable, told Channel Insider in February. "We are not going to have a channel partner bring a deal to us and then take it direct."

The program provides qualified partners with deal registration, qualified lead distribution, the use of the Rackable Configurator that has been used by the company's direct sales force, joint sales engagement and business development, and joint go-to-market campaigns and events. Partners will get a partner portal.

In January, Rackable cut its revenue outlook and announced plans to lay off 15 percent of its work force.

Rackable cut its revenue forecast for 2008 to between $245 million and $250 million. In October, the company's 2008 revenue forecast called for revenues of between $275 million and $300 million.

In January, Rackable said that the layoffs would save $4 million to $5 million annually.

Jessica Davis covers the channel for eWeek and Channel Insider. Her technology journalism career began well before anyone heard of the World Wide Web and has included stints at Infoworld, Electronic News/EDN, and the Philadelphia Business Journal. Her work has also appeared on CNN and Forbes.com. She has covered hardware, software and networking, as well as the business side of technology. She has won several journalism awards, including a national ASBPE award for best staff-written column, and was named Marketing Computers hardest working tech journalist on their inaugural list of top tech journalists. Jessica can be reached at jessica.davis@ziffdavisenterprise.com

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