Workstation Firm, Compaq Holding Talks

The stock price of computer workstation maker Silicon Graphics Inc. soared Tuesday after a published report that it is discussing a merger or other business relationship with Compaq Computer, the leading vendor of IBM-compatible personal computers.

In a statement released after the markets closed Tuesday, Silicon Graphics denied that it is discussing a takeover by Compaq but acknowledged that it is engaged in “strategic business relationship discussions” with Compaq and other companies. Compaq declined to comment.

Silicon Graphics stock reached a 52-week high of $43.50 a share before closing at $41.25, up $3.625. Compaq also hit its high for the year and closed at $73.25 a share, up 75 cents.

Analysts said the two companies’ businesses would complement each other but that an equity investment in Silicon Graphics by Compaq or a product-licensing arrangement was more likely than a merger. High-technology mergers have been notoriously unsuccessful in the past, and both companies are profitable and well-positioned in their markets.

Silicon Graphics specializes in three-dimensional graphics workstations, expensive and powerful machines that are used for product design and process simulation. The company dominates that small but fast-growing market and has been trying to branch out by introducing cheaper products that incorporate its cutting-edge graphics technology.

Compaq, which sells a broad line of IBM-compatible personal computers, has been developing a new strategy for providing high-end desktop computers in the $10,000 price range.

A linkup with Silicon Graphics could give Compaq access to the company’s proprietary graphics-processing technology. Enhanced graphics capabilities, which can be provided in the form of a plug-in circuit board on a personal computer and can enable the machines to handle video and still pictures, is considered a key component of future PCs.