HPE buys SGI for $275M to boost high-performance computing

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Marking a small reversal of Hewlett-Packard Enterprise Co. Chief Executive Meg Whitman’s divestiture strategy, HPE today said it will acquire the high-performance computing company SGI.

The $275 million deal, or about $7.75 a share in cash for SGI shares, a premium to their close today at $5.98 a share, is intended to shore up HPE’s focus on Big Data and high-performance computing (HPC).

The acquisition follows a series of divestitures for Hewlett-Packard, which last year split into two companies, the consumer-oriented HP and the enterprise-oriented HPE. In May, Whitman announced it would spin off its services business, valued at $8.5 billion, to Computer Sciences Corp.

More recently, rumors swirled that HPE was looking to sell its software business, potentially to a private equity company, after not finding a corporate buyer. But HPE appears to be doubling down on computer hardware, especially given its promise to come out before long with new computer design it calls simply “The Machine.”

In the meantime, however, HPE said SGI’s servers, storage and software provide a couple of benefits: For one, SGI bolsters HPE’s position in the $11 billion HPC market, which it says is growing at least 6 percent annually, and in data analytics, which it says is growing twice as fast. For another, the company is especially strong in certain industries such as government, research, manufacturing and life sciences. “By joining forces with SGI, I believe we can help usher in a new era of big data-driven discoveries,” Antonio Neri, executive vice president and general manager of HPE’s enterprise group, wrote in a post

SGI, which had about $553 million in revenues in fiscal 2016, employs 1,100 people. This marks perhaps the final chapter in what had been a long, painful decline for the 35-year-old company before this acquisition. Silicon Graphics, as the original company was named, was founded by James Clark, later a cofounder of Netscape Communications with Marc Andreessen, as a maker of high-performance workstations and servers. It became famous in the 1980s for its flashy 3-D graphics that were used to create special effects in movies such as Jurassic Park.

In 2009, it filed for Chapter 11 bankruptcy after getting delisted from the New York Stock Exchange. It was sold to Rackable Systems, which later took on the SGI name. Just before it hit the skids in 1997, SGI had built a colorful new campus in Mountain View, California, now the headquarters of Google parent company Alphabet Inc.

HPE expects the deal to be neutral to earnings in the first full year after it closes, which is expected to happen in HPE’s first fiscal 2017 quarter that ends next March.

HPE Chief Operating Officer Chris Hsu discussed the company’s mergers and acquisitions strategy with theCUBE, owned by the same company as SiliconANGLE, in June*:

(* Disclosure: TheCUBE was the paid media partner at the HPE Discover conference. Neither HPE nor other sponsors has editorial influence on theCUBE or SiliconANGLE content.)

Image from Nekochan.net