Rackable Systems to Acquire SGI for $25M Cash

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.