C. Meyer zur Heyde Branding

07048842

Page1

MK2012

London Metropolitan University

Module Code: MK2012

Module title: Branding

Title: Silicon Graphics Inc. Case Study Analysis

Student: Christin Meyer zur Heyde

Student ID: 07048842

Module leader: Gareth Thompson

2008

C. Meyer zur Heyde Branding

07048842

Page2

MK2012

Table of Contents

Silicon Graphics Inc. (SGI) Case Study Analysis

I. Introduction.......……………………………………….………………………………..…….3

II. What elements and characteristics comprised the equity in the Silicon Graphics brand in 1996?............................................................................................................3-4

III. How would you characterize the SGI brand in 2000? ............................................4-5

IV. What do you think SGI did right in terms of building its brand? ..........................5-6

V. Did SGI make any mistakes in the way it managed its brand? .............................6-7 VI. Was the rebranding of SGI successful – and how would you measure success, in

general, for a branding? ...........................................................................................7-8 VII. What recommendation would you give SGI executives regarding stewardship of

their brand in the future? .........................................................................................8-9 VIII. Conclusion.....................................................................................................................9

IX. References...................................................................................................................10

X. Bibliography................................................................................................................10

XI. Appendix.................................................................................................................11-16

C. Meyer zur Heyde Branding

07048842

Page3

MK2012

I. Introduction

Silicon Graphics Inc. was founded in 1982 by former Stanford University professor Jim Clark and Abney Silverstone, who used to work as manufacturing executive for Xerox. (SGI (2008)) This report deals with the staggering success of Silicon Graphics Inc. (SGI) in its beginnings and the problems which occurred in due course concerning management and protection of brand value and corporate identity.

II. What elements and characteristics comprised the equity in the Silicon Graphics brand in 1996?

“Brand equity refers to the marketing effects or outcomes that accrue to a product with its brand name compared with those that would accrue if the same product did not have the brand name” (Journal of Consumer Research (2003)). Consumers' knowledge about a brand makes them respond differently to the marketing of the brand. Brands represent therefore the most valuable assets that a company has (European Journal of Marketing (1995)).

4

CUSTOMER-BASED BRAND EQUITY PYRAMID

RESONANCE

SALIENCE

JUDGMENTS FEELINGS

PERFORMANCE IMAGERY

4. RELATIONSHIPS =

What about you & me?

3. RESPONSE =

What about you?

2. MEANING =

What are you?

1. IDENTITY =

Who are you?

As described in the case study, Silicon Graphics Inc. earned high praise and extensive media coverage from the press. Their steep success and their high-quality products were glorified, creating high levels of awareness (salience, see appendix 1) in potential consumers. Especially their connection to Hollywood was an attractive attribute for the media and connections were made between movies and the special effects that had been created with the help of SGI. This association made the products more desirable (imagery, feelings, see appendix 1).

C. Meyer zur Heyde Branding

07048842

Page4

MK2012

SGI had been known for their unique and superior graphic quality which made the production of superb special effects possible as wells as medical research and the creation of technical models (outstanding performance, see appendix 1). Passionate customers complimented the design and SGI products were perceived as representing the elite of graphic computing, leaving the competition far behind (superiority over competitors -> judgements, see appendix 1). Moreover, SGI was strongly associated with creating constant progress in technology. They had put a lot of effort into being perceived as inventive market leader in visual computing and tried to overcome their reputation of being top-notch, but not affordable. They constantly added new products to their portfolio in order to reach a wider target audience. This was essential in order to prevent being only perceived as niche provider. As a result of this, different market segments were targeted with machines suitable for varying needs and pockets. In order to achieve the characteristics of a one-stop shop, SGI expanded into software. However, after over a decay of rising success the company experienced first difficulties in 1996. It seemed as if the management was a bit too sure of their success, who felt their position as being “the best” in the market would be unobtainable. As a result of this delusion of grandeur, they failed to take the competition seriously and relied on their history of delivering break-through technology. In addition to that, they decided to acquire the supercomputer manufacturer “Cray Research Inc.” despite the fact that the relevant market segment did not have the potential of rapid growth. First falls in revenue were recorded. But an even bigger problem was the fact that the relationships customers had were no longer with SGI, but their various sub-brands (low resonance for the master-brand, see appendix 1). In the progress of rapid portfolio expansion in the years prior to 1996, little concern had been put into the disciplined abidance of comprehensible sub-branding. Consumers might have felt loyal and confident using SGI’s Indigo, but tended to no longer connect the satisfying performance of the product to the master-brand. This lack of awareness weakened the parent-brand. SGI had made the attempt to broaden its consumer base, however while doing so, they lost being in touch with the consumer. Sub-brands were standing in between master-brand and consumer and somehow represented an additional rival to the Corporate SGI brand equity.

III. How would you characterize the SGI brand in 2000? By 2000, only a glimpse of SGI’s former glory was still visible. Its market position had been extremely weakened as a result of various factors: Customer complaints due to glitches in SGI’s formerly undefeated technology and related ups and downs in profits and stock value caused numerous staff reconstruction. New product launches without a coherent marketing strategy were used as a quick fix. Unfortunately, this inconsistency devalued the brand image. A much needed brand audit showed low customer awareness especially in comparison with competitors, brand confusion and the knowledge that SGI’s fostered desirable Hollywood brand image intimidated potential consumers. SGI’s brand management had been so thoroughly neglected that the competition had not only caught up with SGI, but overtaken them. As a result, SGI was forced to make backward steps. Their expansion plans from 1996 were no longer manageable. “Cray Research Inc.“ was sold, representing a $ 640 Million loss to the company. Their products were still of value to the consumer, but the lack of brand clarity let SGI appear to be unfocused. They did not realize that their brand was their most important asset until undertaking extensive market research. Spoiled by their former success, SGI had lost customer-focus. After all, it is not the consumer’s task to understand what a brand stands for

C. Meyer zur Heyde Branding

07048842

Page5

MK2012

and has to offer, but the marketer’s responsibility to enhance customers’ knowledge about a brand and make benefits and features comprehensible. SGI’s branding jungle could not be penetrated. Moreover, competitors had started to offer more attractive solutions to consumers and despite their mentioned confidence in 1996, SGI had to realize it had been left behind in the market. By trying to cater to the needs of a wider target audience, SGI had lost share and relevance on both sides of the market spectrum. Many mistakes would have been avoidable. Market research for instance could have indicated that customers would be unwilling to pay a 100% premium for a superior graphic performance in NT workstations. Clearly, SGI prioritized advances in technology over their customer base which was a grave mistake. The decision to rebrand Silicon Graphics Inc. in 2000 comes close to admitting defeat. In order to establish points of parity to their closest competitors, the capitals S G I which were already used as an abbreviation, were given a new meaning: “Servers, Graphics and Insight”. Additionally, this was hoped to have the effect of widening customer acceptance and being no longer associated with graphics only. In the process, staff had to be laid-off and management changes brought different programs of action. Despite these changes, the top point on the agenda was clear for the first time: Brand equity had to be reinstalled in order to stand a chance against the steep competition of the market place and to gain customer resonance.

IV. What do you think SGI did right in terms of building its brand? Historically, the initial reason for brands to be introduced into society was the need to reassure customers about a certain quality that comes with the purchase of a specific product. Brands can be described as human link or emotional bond between product and consumer that installs trust and certain expectations in the buyer. A strong brand with a flawless reputation acts as a risk-reducer. (Kapferer (2004)) In its beginnings, SGI only supplied a niche market with high quality products. They did not have to make any compromises in order to be able to target different customer segments. They quickly gained an exceptional reputation in their category of delivering innovative graphic solutions of the highest possible value. By doing so, they gained what a successful brand wants to achieve: customer trust and loyalty (resonance, see appendix 1). Moreover, they created brand credibility (judgements, see appendix 1) (Keller (2004)). SGI was an inspiration to their consumers. As a result of their graphic innovations, the design of special effects, for instance was not only of better quality, the process was also a lot faster compared to all other workstations. A main definition of successful marketing is identifying customer needs and wants in order to fulfill them (Brassington, Pettitt (2006)). That was exactly what SGI did – they simplified their customers’ lives and therefore convinced them. In addition to that, they created a desirable brand image by linking their product to the glamorous world of movies. They created secondary positive brand associations, also described as leveraging process (Keller (2008)). Their “Hollywood theme” created favorability and a hype around the brand. Their brand positioning increased their news value (Harrison (2000)). As “media darlings” they earned extensive news coverage, which resulted in an increase of awareness. Later on however SGI realized that this “fancy reputation” also kept certain customers from considering buying SGI products. The important thing is that SGI did realize that installing a positive brand image can only be achieved by creating strong, favorable and unique associations in the consumer’s memory and they were successful in doing so when they were still targeting a smaller, more specific audience.

C. Meyer zur Heyde Branding

07048842

Page6

MK2012

They went on by introducing products that capitalize on SGI’s perceived expertise targeting different consumer segments, which in theory is a good idea (Keller (2008)). The move to extend their product ranch offered various advantages which were supposed to further develop brand equity. Desirable outcomes of product or category extensions are for instance:

Increase in the probability of gaining distribution and trial

Avoiding the costs of developing a new brand

An increase in efficiency of promotional expenditure, a reduction of costs in introductory and follow-up marketing programs as well as the involved multiplier effects represent other advantages. SGI however did not have a coherent marketing strategy for their product line extensions and could therefore not reap these benefits. This will be discussed in more depth in question 4. Nevertheless, this can also be interpreted in a positive way. Since the master-brand SGI and many of their product lines are not closely linked, unsuccessful brand extensions do not necessarily damage the reputation of the parent brand.

V. Did SGI make any mistakes in the way it managed its brand?

“A brand is a name, term, sign, symbol or design which is intended to identify the goods or services of one seller to differentiate them from those of the competition.” (Keller (2008)) Unfortunately, SGI made it quite difficult for the consumer to indentify what their name precisely stands for and where to position them. Especially High-tech products, need explaining since they are subject to rapid changes due to innovation in technology. It is the task of the marketer to simplify the consumer decision making process. SGI however complicated this process by adopting an undisciplined brand management and confusing the consumer by introducing numerous sub-brands with no clear connection to the master-brand. SGI made the wrong assumption that the superiority of their products would generate success automatically. Clearly, good marketing alone can not help to sell a product of minor quality in the long-run. However, even a product with outstanding excellence can not be successful if little effort has been put into a consistent corporate brand image. SGI made a mistake that is likely to be made in the High-tech industry: The over-branding of their wide product portfolio to the extent of alienating the master-brand and the sub-brand completely (Keller (2008)). Strong links are needed when product lines are extended. Otherwise, the disadvantages of brand extensions (please see p. 503 Keller (2008)) eliminate the advantages. Beside the fact that the chaotic sub-branding confused consumers, SGI’s brand audit also showed that potential consumers did perceive SGI as a “fancy brand” that was not within their reach. Many of them were aware of the brand, but did not deem the brand relevant to them or their High-tech brand consideration. SGI experienced difficulties to get closer to the customer base due to their initial lack of customer-focus. They prioritized technology and innovation over a close relationship to their customers. A vague brand positioning and customer confusion undermined the development of strong customer loyalty when SGI decided to target the mass market. Consumer commitment and product-loyalty was in many cases established with SGI’s sub-brands, which had little effect on the overall corporate brand equity however. Considering how many marketing messages, brand images and choice every individual is exposed to, it makes it all the more important to deliver a clear brand image. In order to

C. Meyer zur Heyde Branding

07048842

Page7

MK2012

stand out from the clutter of the media environment, SGI would have needed to make their brand image a lot simpler and to-the point for the consumer. SGI undervalued their most important asset, their master-brand, when they decided to create “unique identities” for their sub-brands. The Indigo product line especially “achieved an identity independent of the SGI brand”. This meant that SGI was unable to reap the benefits of successful brand extensions (please see p.495 Keller (2008)). SGI’s using of superlatives as “Extreme” show how little their terminology was thought through. It is visible that the core function of the company was the engineering process not the implementation of a marketing strategy.

VI. Was the rebranding of SGI successful – and how would you measure success, in general, for a branding?

In certain ways SGI’s rebranding was successful. Without a doubt a repositioning was needed, meaning SGI was not left with much choice after the evaluation of the brand audit. Positive outcomes include the renaming of Silicon Graphics Inc. to “Servers, Graphics and Insight”, because it widened their marketing spectrum. The attempt was made to expand the narrow market of professional graphic solutions in order to widen their appeal to different customer segments. Besides, the abbreviation to the generic brand name SGI offered points of parity to leading competitors such as IBM or SUN. The similarity of the brand names made it easier to associate SGI with the same product category as other suppliers represented. As a result of the audit, SGI realized that their branding strategy was out of control, if not to say there was no strategy behind it whatsoever. Over 500 sub-brands had been introduced into the market. Their reaction to this during the rebranding process was the introduction of three major product categories. For the first time, a systematic naming strategy was developed accordingly and room for future product extensions was taken into consideration. Unfortunately, SGI had taken a long time to understand the root of the company’s decrease in profits. By the time they realized the stewardship of their brand was insufficient, the competition had already established their brands. SGI was still busy finding “beautiful” and “ridiculously” long names for their new product extensions, while the competition was building strong brands with a consistent fundament and persuasive and coherent messages. Therefore it was increasingly difficult to win back market share in order to revitalize former glory of the brand. To sum up, necessary steps were taken with the intention of appealing to a wider audience and to do so in a strategic, more professional and comprehensive manner. However, it must also be taken into consideration that this might be resented by an already established customer base (Keller (2008)). SGI failed to immediately gain in importance and increase their market share as a result of their rebranding. Even so, it can be concluded that without their repositioning attempts the brand would have been very likely to be defeated.

C. Meyer zur Heyde Branding

07048842

Page8

MK2012

There are numerous models that can help to describe brand success. To this case, the brand value chain is of great value.

5

Brand Value Chain

Program

Multiplier

Marketing

Program

Investment

Customer

Mindset

Market

Performance

Shareholder

ValueVALUE

STAGES

- Product

- Communications

- Trade

- Employee

- Other

- Awareness

- Associations

- Attitudes

- Attachment

- Activity

- Price premiums

- Price elasticities

- Market share

- Expansion success

- Cost structure

- Profitability

- Stock price

- P/E ratio

- Market capitalization

Consumer

MultiplierFILTERS

- Clarity

- Relevance

- Distinctiveness

- Consistency

- Channel support

- Consumer size & profile

- Competitive reactions

- Market dynamics

- Growth potential

- Risk profile

- Brand contribution

Market

Multiplier

It basically shows that a brand that is carefully managed can reap the benefits of marketing messages that fit together and are in tune with the overall brand meaning. Multiplier effects make branding more intense and sufficient. After the rebranding of SGI, the company was more likely to gain from those multiplier effects, which is highly desirable and shows an improvement to the brand. Generally, the basis of brand measurement consists of extensive market research. Especially technology companies are often inclined to overlook its relevance in the heat of introducing new innovations. With the help of brand audits (eventually conducted by SGI) brand success can be described and detected. However, this should not be done when the brand is already experiencing difficulties, but conducted constantly.

VII. What recommendation would you give SGI executives regarding stewardship of their brand in the future?

First and foremost, it is of vital importance to SGI to focus on their corporate image as the basis of establishing brand equity. Mixed messages should be avoided. One coherent brand value should be prioritized: SGI stands for quality hi-tech solutions, superior in their performance and desirable in their design and brand associations. But in contrast to SGI’s prior positioning, this luxury is now obtainable by everybody though product lines are specified according to varying needs and financial limits. In order to not devalue the brand image, SGI should make sure that they differentiate their products in accordance to the market segment that they are targeting respectively. They should especially consider and bare in mind the difficulties that lie within marketing a high-tech product (please see pp. 649 (Keller (2008)). They learned the hard way that not every product that is convincing on the performance level will out win the competition. A clear, focused and disciplined managing of the brand is just as important.

C. Meyer zur Heyde Branding

07048842

Page9

MK2012

SGI used to lack customer-focus. Therefore a strong devotion to relationship marketing should be initiated. By individualizing brand experiences stronger levels of customer commitment can be established. As an example, SGI enhanced their brand image successfully when they decided to collaborate with the British Museum in London. The project saw a 3000-year old mummy becoming alive by the means of SGI’s new 3D visualization technology (Tench, Yeomans (2006)). This event generated a high level of customer engagement which can result in improved brand resonance. Such tactics should be kept up and strengthened. Another strategy is to familiarize prospective customers with SGI’s products and convincing them of their usefulness and good quality without them needing to buy the SGI hardware. This October, SGI introduced a software that can be used by all-types of computer users (Wall Street Journal (2008)). This widely expands SGI’s customer base. Offering solutions that are in tune with customer needs and wants have a positive impact on the overall brand image and should be continued to be brought forward in the future. Multiple touch points with the brand should be offered. This can be helped along by organized events. They are nearly endless possibilities of computer or graphic design competitions which again improve customer engagement (Keller (2008)). Additionally, sponsorships or endorsements that show a link to SGI’s brand values could be considered. Generally, there are various opportunities to enhance the brand image and brand experience of SGI and multiplier effects bring numerous benefits to the brand equity. In addition to these campaigns, a focus on customer retention should be kept. Research indicates that loyal customers are most valuable to a brand and should therefore receive special consideration (Brassington, Pettitt (2006)). But most importantly, SGI should make sure that they continue to represent high quality and consumer satisfaction. If opinion formers and leaders are convinced by their products, positive word-of-mouth communications will generate credible and favorable brand associations. Awareness of them will make sure that SGI will be part of the consideration set of consumers when it comes to computer solutions.

VIII. Conclusion This case study shows that an extremely successful brand does not guarantee to continuously gain profits. The possibility to lose in importance in a volatile market place is high. The constant monitoring of brand performance is vital. It also shows that brand management is the core function of generating market growth. A quality product without the needed marketing back-up is inclined to fail in the long-run. SGI has experienced both extremes: major success as well as major failure. One lesson they should have learned is not to be too sure to be “the best” on the market – that’s exactly when the competition quietly overtakes. In conclusion it can be said that SGI learned from their mistakes. Appendix 2 and 3 indicate that they strive to be seen as innovative but customer-focused company and still generate headlines. They are however still paying off the debt of their ignorance when they thought they were “the best” and nobody could compete with them. This misconception kept them from growing to their full potential.

C. Meyer zur Heyde Branding

07048842

Page10

MK2012

IX. References

Books:

Keller, K.L., (2008) Strategic Brand Management Pearson Education Kapferer, J. (2004) The New Strategic Brand Management Kogan Page Tench, R., Yeomans, L. (2006) Exploring Public Relations Prentice Hall Brassington, F. and Pettitt, S. (2006) Principles of Marketing Pearson Education Harrison, S. (2000) Public Relations – an Introduction Thompson Learning

Websites:

SGI – Innovation for Results [www] sgi.com (1.11.2008)

Newspaper Articles/ Journals:

Journal of Consumer Research (2003) Brand Synthesis: The Multidimensionality of Brand Knowledge written by Keller, Kevin Lane European Journal of Marketing (1995) Brand Equity: The Halo Effect written by Leuthesser, L., Kohli, C.S. and Harich, K.R. Wall Street Journal (27.10.2008) Computer-hardware pioneer expands to software Nexis UK Aviation Week and Space Technology (12.05.08) Super Concerns: Use of U.S. supercomputer with China? Nexis UK

X. Bibliography

Fill, C. (2006) Marketing Communications Prentice Hall

C. Meyer zur Heyde Branding

07048842

Page11

MK2012

XI. Appendix Appendix 1:

Sub-Dimensions of CBBE Pyramid

LOYALTY

ATTACHMENT

COMMUNITY

ENGAGEMENT

QUALITY

CREDIBILITY

CONSIDERATION

SUPERIORITY

WARMTH

FUN

EXCITEMENT

SECURITY

SOCIAL APPROVAL

SELF-RESPECT

CATEGORY IDENTIFICATION

NEEDS SATISFIED

PRIMARY CHARACTERISTICS &

SECONDARY FEATURES

PRODUCT RELIABILITY,

DURABILITY & SERVICEABILITY

SERVICE EFFECTIVENESS,

EFFICIENCY, & EMPATHY

STYLE AND DESIGN

PRICE

USER PROFILES

PURCHASE & USAGE

SITUATIONS

PERSONALITY &

VALUES

HISTORY, HERITAGE,

& EXPERIENCES

Appendix 2:

THE SAN FRANCISCO CHRONICLE

June 26, 2007 Tuesday

SGI and Sun unveil giants; Supercomputers may rejuvenate hardware firms

Written by Tom Abate

Two struggling Silicon Valley hardware companies are expected to show off new supercomputers at a trade show in Germany today.

Silicon Graphics Inc. will takes the wraps off a new hardware line crucial to its rebound from bankruptcy, while Sun Microsystems Inc is previewing what it says will be the fastest machine on Earth -- once it gets the new processors needed at the heart of its system-to-be.

For both companies, these high-powered new systems could represent resurgence. SGI and Sun flew high during the 1990s but have suffered in recent years.

C. Meyer zur Heyde Branding

07048842

Page12

MK2012

In October, SGI emerged from a six-month court-supervised reorganization, while Sun has worked through its own turnaround and leadership changes during the past two years.

In separate briefings last week, both firms showed off their latest offerings in the $40 billion market for high-performance computers -- a field that includes such tasks as climate research, drug design, engineering simulation and even financial investment.

For SGI the new family of supercomputers is a crucial step in its recovery.

"SGI has struggled for a number of years, and we're here to tell you that we are back," said Executive Vice President Dave Parry, who will be competing against the current supercomputer leaders, IBM Corp. and Hewlett-Packard Co.

As for Sun, senior executives Andy Bechtolsheim and John Fowler offered glimpses of a system that is meant to signal its competitiveness at the high end -- once it takes delivery of the new server chips from Advanced Micro Devices Inc. that will power its supercomputer.

"The reason we are not announcing this as a shipping product is because we're waiting for the chips," said Bechtolsheim, one of Sun's co-founders.

Both systems are marvels of engineering that take somewhat different approaches to pushing the computation envelope.

SGI's $350,000 Altix ICE looks like a refrigerator. In fact, its features include a water-cooling system, akin to a car radiator, designed to keep its 1,000 pounds of electronic components from overheating. Several of the units can be joined for greater processing power.

The Altix will run on up to 512 Intel Xeon processors. Hardware development was led by SGI Chief Technology Officer Eng Lim Goh. SGI is positioning the Altix as a workhorse that will run with a minimum fuss rather than as a breakthrough machine designed to set supercomputer records. Other selling points include its relatively small size and low electricity consumption, both increasingly important issues in crowded data centers.

The system software is equally important. Supercomputers use a programming approach called parallel processing. The idea is to break down large computing chores into sub-problems and then to parcel out these tasks so that hundreds of processors can solve pieces of the puzzle simultaneously.

As part of its comeback bid, SGI will tell supercomputer buyers that, in addition to selling them hardware, it will also help them manage the 12 to 20 software programs -- many of them based on the open-source Linux operating system -- needed to run a supercomputer.

"We want to create an industrial-strength Linux environment," said SGI chief executive Robert Ewald.

A former Los Alamos National Laboratory supercomputing expert, Ewald rejoined SGI in April. He had worked at SGI during the 1990s before leaving to take other jobs including, most recently, running a competing supercomputing firm, Linux Networx.

Now, the born-again SGI guy says the company will focus on improving reliability as opposed to setting records.

C. Meyer zur Heyde Branding

07048842

Page13

MK2012

"There is a gap between the peak theoretical speed and what (users) are actually getting," Ewald said. "Ten years ago it used to be about 90 percent. Now, in many cases, it's 20 or 30 percent."

By contrast, Sun has aimed its new Constellation system toward the high end of the market.

"It is expected to be the fastest supercomputer in the world," said Sun Executive Vice President Fowler, who hopes Constellation will displace the current speed leader -- IBM's Blue Gene, at Lawrence Livermore National Laboratory.

Of course, any such bragging must wait until Sun gets AMD's latest and fastest chips. Microprocessor analyst Nathan Brookwood, who attended the Sun briefing, said AMD hasn't said exactly when it will start shipping the chips Sun plans on using.

"If it happens in July, it would be on track," Brookwood said. "If it happens in August or September, that would be a little late."

Once the chips become available, Sun will pop them into the gigantic, government-funded supercomputer system it is building for the University of Texas at Austin. Sun was fuzzy about how much this mega-machine would cost, suggesting only that it would be in the vicinity of $50 million.

"The computer itself occupies just over half of a basketball court," Fowler said.

Sun's Constellation will consist of dozens of blinking cabinets containing a total of 3,456 "motherboards" all wired together through two central units that will coordinate the processing activity of the entire colossus.

Those two central cabinets will function as switches, controlling the thousands upon thousands of constituent elements that will give the Constellation its computing ability. "It will look like this Medusa of cables," Fowler said, "like a mad scientist thing."

Those cables turn out to be a limiting factor, explained Sun's Bechtolsheim. The volume of data pulsing through wires combined with the number of processors collaborating on calculation dictated that no cable could be longer than 15 meters. Sun also had to create a new, sturdier connector for these cables. "You wouldn't believe a connector could be that important, but it is," said Bechtolsheim, adding that "cables are the least reliable parts of these systems."

Despite its best efforts to simplify the system and improve its reliability "we still expect hardware interruptions on a weekly basis," Bechtolsheim said.

Fowler said the company had two big reasons for jumping back into the supercomputer game in such a big way. He said advances in high-end systems percolate down into better mid-range and low-end machines. Added to that, supercomputer sales are growing 12 to 15 percent compared with 2 to 3 percent for the overall market.

"It is the fastest-growing subset of the computer market," Fowler said.

C. Meyer zur Heyde Branding

07048842

Page14

MK2012

Appendix 3:

Aviation Week & Space Technology

May 12, 2008

Super-Concerns; Use of U.S. supercomputer with China?

Written by Craig Covault

A U.S. supercomputer like those used at research facilities such as Los Alamos National Laboratory will be used by the Chinese to operate a new generation of Fengyun weather satellites to be launched as early as this month. There are military implications, however, for use of this powerful Silicon Graphics Inc. computing capability.

The advanced weather satellite system will be employed heavily by the People?s Liberation Army (PLA) as well as civilian weather outlets. The Chinese have developed their own software codes to run in the SGI system.

The situation illustrates how legal technology transfers between the U.S. and China can also greatly enhance Chinese military capabilities.

The Nuclear Threat Initiative (NTI), a global security watchdog, notes that SGI?s supercomputer sales to China have raised concerns in the U.S. Commerce and State departments in the past. As a result, there are now stricter rules under which SGI and other companies can make such sales.

U.S. software is also at the heart of a computer-aided design system being used by the Chinese to develop new oxygen/kerosene and oxygen/hydrogen rocket engines for the new Long March 5 line. The booster, which is expected to make its initial flights around 2010, will be comparable to the U.S. Air Force?s Evolved Expendable Launch Vehicles.

Chinese engineers are using U.S.-developed EDS Unigraphics CAD/CAM software to improve the new engine designs. Company managers say procurement of their hardware or software by the Chinese complies with strict technology transfer laws.

The weather satellite?s supercomputer configuration uses an SGI Altix system powered by 1,280 Intel Itanium 2 processor cores with 4 terabytes of shared memory.

The Chinese integrated this basic supercomputer with a 26-terabyte SGI InfiniteStorage system and the SGI Shared FileSystem. The resulting system ranks as the largest shared-memory computer in China and the fourth fastest in the country. The computing complex is based at the Chinese National Satellite Meteorological Center (NSMC) in Beijing. China continues a systematic effort to obtain . . . through legal transactions dual-use and military technologies,? according to the Pentagon?s 2008 report on China? s military power.

?Many dual-use technologies such as software, integrated circuits, computers, electronics and [security-related] information systems are vital for the PLA?s transformation into an information-based network-centric force,? the document states.

C. Meyer zur Heyde Branding

07048842

Page15

MK2012

Rapid dissemination of high-resolution weather satellite imagery and data qualifies as one of the most fundamental areas of time-critical information needed for all aspects of military training and other operations.

The new spacecraft, comparable to mid-1990s versions of the U.S. Defense Meteorological Satellite System (DMSP) and National Oceanic and Atmospheric Administration polar orbiters, will use the Altix supercomputer to generate the high-volume weather data. Similar Altix devices are key computing elements at the NASA Goddard and Ames centers, as well as at the Oak Ridge and Los Alamos national laboratories. They provide computational capabilities important to programs involved with U.S. science and technological leadership?a capability now shared with the Chinese.

?The inherent dual-use nature of space technologies means that China? s improving space capabilities could be used against the U.S. military,? says a new U.S. Army report on Chinese military technology.

The first of the 2.5-ton Fengyun-3 (FY-3) polar-orbit weather satellites is planned for launch on a Long March 4B from the Taiyuan launch site south of Beijing as early as late May. The goal is to support weather forecasting for the Olympic Games beginning in August, say Chinese managers. But the system will also play an important role in providing data to the increasingly modern Chinese air, sea and land forces under the PLA.

The Fengyun-3 class of weather satellites, built by the Shanghai Space Bureau, will carry 11 sensors. The first of the FY-3 series is under final checkout for launch. The new spacecraft look similar to the NASA Terra satellite with a single large side-mounted solar array.

Ironically, an older FY-1 polar-orbit weather satellite was destroyed by China? s antisatellite weapons test in January 2007. The new FY-3 series is designed to hone in and provide weather data on areas as small as 250 meters (820 ft.) across. This capability will be vital to the Chinese army, just as DMSP data are used by U.S. military forces.

The U.S. Army Institute report notes that ?China? s space program is a military-civilian joint venture in which the military develops and operates its satellites and runs its infrastructure.? The institute adds that ?the Chinese boast that FY-3 will reach higher technical standards than the U.S. NOAA-15 satellite?a spacecraft launched in 1998.?

?The reason we selected the SGI HPC solution for this mission-critical application is because we will rely on the SGI supercomputer interconnect, an extremely fast and low-latency system to ensure optimum performance,? says Jun Yang, NSMC director. ?We also appreciate the SGI Altix 4700 architecture?s ability to scale to meet our future application requirements.?

?The installation of the new Altix system went smoothly and is on schedule,? says Jin Ming Shi, director of the Fengyun satellite ground application network. ?The SGI service team was a great asset in deploying such a large system, and we look forward to working with them to optimize our code further so we can take full advantage of this highly parallel and highly scalable system.?

Despite its military ties, the Chinese weather organization has been quite cooperative with the NOAA, says Greg Withee, who heads the organization?s satellite service. He was in Beijing as part of a forum led by the Washington-based Center for Strategic and International Studies.

C. Meyer zur Heyde Branding

07048842

Page16

MK2012

Although the U.S. and China have only limited space ties because of the U.S.?s stance on Chinas human rights record, the weather analysis cooperation is good, notes Withee. He says the Chinese have been especially instrumental in assisting the U.S. in global climate studies.

?Today, more than ever before, meteorological satellite data is playing an important role in climate research, environment management, and in natural disaster monitoring,? says Bill Trestrail, vice president of SGI in the Asia-Pacific region. ?SGI systems have a unique ability to ingest, analyze and store such massive amounts of data, which is critical to delivering more accurate forecasts and understanding global climate change. We are looking forward to the successful launch of [the first] FY-3 satellite, and I?m sure it will bring remarkable social and economic benefits to China.? NTI says ?companies planning to sell supercomputers to ?Tier 3? countries such as China [which present proliferation risks] face certain restrictions. For computer exports to civilian end-users in China, U.S. companies must apply for an individual validated license (IVL) for computers with a capability above 20,000 million theoretical operations per second (MTOPS). For exports to Chinese military end-users, U.S. companies must apply for an IVL for computers with a capability of 12,500 MTOPS.?

In addition, NTI says ?companies must submit an application to the Commerce Dept.?s Bureau of Export Administration indicating the computer?s end-user. The Commerce, State, and Defense departments then have 10 days to object to the pending sale.?

Twelve FY-3 polar-orbiters are planned for launch through 2020, says Gao Huoshan, general director of the FY-3 development team. ?Compared with the predecessor FY-1 design, FY-3 will provide more meteorological details for temperature, humidity, cloud and radiation,? notes Chen Weiqiang, an FY-3 designer.

With its microwave-band channel, the new satellite can film through clouds to present 3D pictures. Its predecessor Fengyun-1 could take only 2D images.

?To make an analogy, the pictures sent by the Fengyun-1 design are black and white; those from Fengyun-3 will be colored and three-dimensional,? says Chen.