HPE To Buy SGI In $275M Deal, Doubling Down On High-Performance Computing

Hewlett Packard Enterprise is doubling down on its high-performance computing offensive with an agreement to acquire SGI in a $275 million all-cash deal.

HPE said the acquisition of SGI , a longtime computing innovator whose 3-D worksations were considered state-of-the-art in the early 1990s, will strengthen its position in the $11 billion high-performance computing market, which is growing at a 6 percent to 8 percent compound annual growth rate.

[Related: Report: Private Equity Firms Eyeing HPE Buyout]

HPE said the deal provides it with a "highly complementary" product portfolio, expanding its presence in key high-performance computing verticals including research, life sciences and government.

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"It's great to see HPE buying a strong high-performance computing company like SGI, especially with the big data and HPC markets coming together," said Kelly Ireland, founder and CEO of Orange, Calif.-based CB Technologies, an HPE enterprise partner that specializes in high-performance computing and analytics. "SGI has a great reputation in the market. I expect HPE to use some of its R&D budget to drive further advances in big data analytics with some of the cutting-edge SGI technology."

Ireland said HPE's innovation offensive, including its no-holds-barred high-performance computing push, has helped CB Technologies grow its customer base by more than 108 percent during the past five years.

Ireland praised HP CEO Meg Whitman for driving an innovation renaissance at HPE, with heavy R&D investment and acquisitions like SGI and Aruba Networks.

Under the terms of the deal, Palo Alto, Calif.-based HPE will pay $7.75 per share in cash for SGI shares – net of cash and debt.

SGI shares, which closed at $5.98 Thursday, soared 29 percent, or $1.71, in after-hours trading to $7.69 after the deal was announced.

HPE shares, meanwhile, which closed at $21.78 Thursday, were down 1 cent to $21.77.

HPE said the deal, which is expected to be completed in the first quarter of its fiscal year 2017, which begins Nov. 1, will be neutral in the first full year following the close of the deal.

SGI, which has 1,100 employees, closed out its last fiscal year ended June 24 with a loss of $11.17 million on sales of $532.9 million. That compared with a fiscal year 2015 loss of $39.14 million on sales of $521.25 million.

In the most recent CRN Partner Program Guide, SGI said it currently has 174 partners in North America with approximately 21 percent to 30 percent of its sales coming from the channel.

The SGI deal comes in the midst of reports that private equity companies are contemplating buying some HPE software assets such as Autonomy or Vertica or even a full buyout of HPE.

It also comes just nine days after HPE restructured its cloud business, moving its Helion OpenStack and Helion CloudSystem teams to HPE's Enterprise Group to be part of the newly created Software-Defined and Cloud Group.

In the wake of the restructuring, Bill Hilf, senior vice president and general manager of the HPE cloud business, decided to leave the company, along with Manish Goel, senior vice president and general manager of HP storage.

The cloud shakeup comes after a June sales and marketing restructuring with both CTO Martin Fink and Chief Customer Officer John Hinshaw revealing plans to step aside later this year.