For the domestic roll-out of the Nintendo64, which started on September 29th, 1996, SGI placed full page ads highlighting the SGI/Nintendo relationship in both the Wall Street Journal and the San Jose Mercury News on Tuesday, December 10th, 1996. Nintendo will be shipping over 1.3 million of the new Nintendo64 machines, the Time Machine of the Year, to the United States prior to the beginning of the new year. Analysts believe Nintendo plans to spend close to $50 per machine in marketing alone. That comes to more than a $50 million marketing program within the first three months of shipping in the United States!

SGI, creator of the technology that has made the Nintendo64 a blockbuster, placed the full page ads to reassure the public that leading technology continues to come from SGI and to emphasize SGI's continued leadership position within the Gaming Industry. SGI stands to benefit from the success of the Nintendo64 in many direct and indirect ways. Directly, SGI will receive royalties from both the sales of the gameplayers as well as the sales of the actual games. Indirectly, the success of the Nintendo64 will further bolster SGI's Interactive division.

One of the fastest growing Application Segments within SGI is Interactive (Games, LBE, Kiosks, On-line.) In FY96, this segment grew over 2300%. Overall, the Games Industry continues to prosper with 3,250 game titles available in 1995, a 41% increase from 1994 and a predicted 4,500 game titles be available in 1996. The faster this industry grows, the greater the demand for high quality game development systems - the greater the demand for SGI products. Platform transitions to PC, new game players and the reported fact that 37% of Internet users surf the `net for games, mean an ever increasing demand for high end development stations. Industry sources estimate that just the on-line games market alone will grow from less than $10.0 million in 1994 to over $500.0 million in 1998.

SGI is hot in every aspect of the Interactive Game Business and by taking advantage of our strong position we also benefit our traditional Film and Video markets. Many of the companies that develop games today, Digital Domain, Industrial Light & Magic and Time Warner are well established in the traditional Film/Video realm. Indeed, these companies even use much of the same creative content across these market segments, spinning their games off of the successes of a movie or television show. While these two industries seem to go hand in hand, most of the traditional Film and Video Business for SGI is high-end, and the incremental Game Development Business represents more of the low-end. The low-end concentration of game development makes the Interactive Application Segment all the more exciting with the roll out of O2 in Q1FY97. O2 will be positioned as the development platform of choice for the Interactive Application Community.

SGI is already leveraging our strong position in each area of the Interactive Game Market to ensure continued dominance. Leading Game Industry professionals already know that SGI offers their industry the best solutions. Our challenge now is to convince all game developers that SGI is cutting edge game players and offers the content development technology for today's market.

Ad placement and a continued strong marketing campaign in conjunction with the Nintendo64 domestic launch are important to the overall marketing strategy because:

1. It is advantageous to leverage Nintendo's mass marketing muscle in order to promote SGI as the leading provider for comprehensive solutions for the Gaming Industry.
2. Co-marketing with successful partners benefits the SGI image as the leader in visual computing across all markets.
3. The success of the Nintendo64 roll-out will help SGI's bottom line with the royalties generated from the games and gameplayers.
4. New product launches will benefit from co-promotion activities.
5. The co-promotion will bring SGI back into view for our shareholders and the financial community at large.