HPQ HP Inc

By Don Clark and Josh Beckerman 

Hewlett Packard Enterprise Co. agreed to pay about $275 million to buy Silicon Graphics International Corp., a once-influential pioneer in computing hardware that wound up settling into a small industry niche.

The two Silicon Valley companies, which have competed for decades, will form a combination that HP Enterprise said will enhance its data analytics and high-performance computing businesses and aid sales to government agencies.

HP Enterprise said it would pay $7.75 a share, a 30% premium to SGI's closing stock price on Thursday. SGI shares rose 29% in after-hours trading, while HP Enterprise shares were flat.

The former unit of Hewlett-Packard Co., formed in that company's breakup in November, is the largest maker of server systems that perform many tasks in corporate and government data centers.

SGI, as it is widely known, was founded in 1982 and led an early wave of desktop workstations and other hardware that scientists and engineers used to manipulate three-dimensional images. The company later branched into servers and supercomputers. Its market value topped $7 billion in 1995.

But SGI's graphics business diminished as companies like Nvidia Corp. began selling chips that helped personal computers do similar chores at a lower price. The company was also hurt by a wave of inexpensive server systems based on Intel Corp. x86 microprocessors.

SGI wound up going through chapter 11 bankruptcy proceedings twice. Its assets were purchased the second time by Rackable Systems Inc., a company that sold x86 servers, which assumed the SGI name. In recent years, SGI began focusing on high-performance computers, storage hardware and software tailored for applications associated with analyzing large amounts of data.

Antonio Neri, an HP Enterprise executive vice president and general manager, said that SGI has systems with particularly large pools of memory to run large databases at high speed than using disk drives.

"We are seeing tremendous momentum on that workload," he said.

Crawford Del Prete, an analyst at International Data Corp., called HP Enterprise's decision to buy SGI a good move. "It increases their footprint in a margin-rich part of the market," he said.

SGI on Thursday said it had swung to a profit in the fiscal fourth quarter of $100,000, or break-even per share, compared with a loss in the year-earlier period of $10 million, or 28 cents a share. Revenue declined nearly 20% to $123 million.

It reported a loss of $11 million on $533 million in revenue for the fiscal year.

HP Enterprise said the SGI deal is expected to be neutral to its earnings in the first full year after closing and add to its profit thereafter.

Write to Don Clark at don.clark@wsj.com and Josh Beckerman at josh.beckerman@wsj.com

(END) Dow Jones Newswires

August 11, 2016 19:33 ET (23:33 GMT)

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