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It seems silly even to ask the question, but really: What the heck is going on with Silicon Graphics (SGIC)?

On one level, you know the answer: Silicon Graphics is selling the bulk of its business to Rackable Systems (RACK) for $25 million in cash and the assumption of some debt as part of a Chapter 11 proceeding. You’d think there wouldn’t be much left for holders of the common stock. In fact, the company specifically has said that SGIC holders will not receive any proceeds from the Rackable transaction.

Today, a legendary Silicon Valley company goes out with a fizzle.

Rackable Systems (RACK) announced that it will buy most of the assets of Silicon Graphics (SGIC), the long-time provider of high-performance computers, for $25 million in cash and the assumption of certain liabilities as part of a pre-packaged Chapter 11 filing by Silicon Graphics. the deal is expected to close within 60 days.

Current SGI shares appear likely to be worthless, according to an 8-K filing by Silicon Graphics:

Silicon Graphics (SGIC) disclosed in an SEC filing that last week it eliminated 120 jobs, or about 9% of its global workforce. The company said it will take a charge of about $3 million for severance and other employee termination costs. The job cuts are expected to be completed by March 27.

Silicon Graphics (SGIC) this afternoon said it will cut its staff by 225 positions, or about 15% of its workforce in response to the global recession.

CEO Robert Ewald said in a statement that “the impact of the credit crisis and weakened global economy has caused SGI, along with our customers and other companies in our industry, to reduce expense levels to reflect the current business environment.”

SGIC today rose 12 cents, or 3.4%, to $3.62.