Why did the merger between Rackable Systems and Silicon Graphics to create SGI take place? Was it a good idea?

SGI, or Silicon Graphics International, was formed by the merger of Rackable Systems and Silicon Graphics in May 2009. Although Silicon Graphics is the company with the longest and most famous history—it was once the industry leader in graphical, supercomputing solutions and worth $7 billion at its peak—it lost its competitive advantage in the last decade to other high-tech companies, such as HP, Nvidia, Dell, and Sun Microsystems. The company was forced to declare Chapter 11 bankruptcy in 2009. In March 2009, Rackable Systems CEO Mark Barrenechea decided to buy Silicon Graphics for $45 million, and managers from both companies are working to combine their technological competences to strengthen the new SGI business model. Barrenechea, now SGI’s CEO, is hoping Silicon Graphic’s assets and competences can help the new company cope better with an intensely competitive industry environment that emerged after Dell decided to target the same market segment as Rackable Systems. Both companies are competing to sell powerful servers to Internet companies, particularly those building up their capabilities in cloud computing. In May 2009, the strategic task facing Barrenechea was how to use SGI’s global assets to better position the company for the upcoming battle against Dell, as well as HP, IBM, and Sun.