July 12, 1999 11:35 AM PDT

IBM buys Sequent for $810 million

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An IBM, Sequent deal would drive Monterey

June 30, 1999
IBM announced today it would buy Sequent Computer Systems for $18 a share, with an expected total equity value of $810 million.

The deal shores up IBM?s position in Project Monterey, a next-generation version of Unix in which IBM and Sequent are partners, and fills a gap in IBM's server hardware lineup.

Under terms of the agreement, IBM will integrate Sequent's NUMA (non-uniform memory access) servers into its product line, filling an important hole between IBM?s four-way, Intel-based Netfinity servers and powerful RS/6000 and S/390 servers. Sequent?s NUMA servers, which run Windows NT, currently scale up to 64 processors with plans for 256-processor support. The NUMA line will apparently play an important midrange role in IBM?s E-Business strategy.

IBM also plans to leverage its sales force and dealer network to increase volume sales of Sequent?s NUMA-Q 1000 and 2000 servers and will incorporate NUMA technology into some of its existing products. IBM will also develop middleware supporting Sequent?s servers.

The biggest gains may be in Monterey, where IBM plans to accelerate its efforts. IBM, Intel, SCO and Sequent are all working together on Monterey, a next-generation Unix for both IA-32 and IA-64 platforms. The operating system, which would support Intel?s Merced microprocessor, draws from IBM?s AIX, UnixWare from SCO and Sequent?s PTX versions of Unix.

Analysts speculated that because of SCO?s large install base, Monterey has the potential to be the largest volume version of Unix on Merced.

"It makes sense given that Sequent is one of IBM?s partners in Monterey," said Joe Ferlazzo, analyst with Technology Business Research. "On its own, Sequent didn?t have a lot of life left. What this allows IBM to do is gain another piece of mass-market Unix technology. It?s a good move for IBM. They can go down a clean partnership path with SCO and prep the market for the transfer of SCO?s 32-bit base to Monterey."

Joyce Becknell, director of Unix and Enterprise Systems for the Aberdeen Group, said the merger makes sense for other reasons. "Sequent doesn?t have a very good history of working nicely with everybody. If you look at the partnerships they left behind, they?re all over the map."

By buying Sequent, IBM reaps the technology benefits Sequent brings to Monterey, while removing obstacles slowing development, she said.

"For IBM to sell Sequent systems makes sense, given that they don?t have that class of system right now," said Tony Iams, server analyst with D.H. Brown Associates. "They have Nefinity servers, but for anything over four processors they?re going to send you over to PowerPC and AIX."

More robust technologies
Going forward, IBM may gain on another front. Sequent's NUMA server technology gives Big Blue a more robust hardware platform for Merced than other Intel technologies currently available and another potential platform for Monterey.

IBM would also have a more scalable solution to combat large Windows 2000 multiprocessor systems from Unisys and others. Unisys plans later in the year to deliver a 16-way system, and, next year, a 32-way Intel processor system capable of running several different operating systems simultaneously.

The deal casts a shadow over beleaguered Data General, which also makes NUMA servers. In the short term, Data General could use the merger to its advantage, but long term, Data General's position is unclear, Becknell said.

"It could be good for Data General because it validates that market," said Becknell. "When someone as big and as smart as IBM moves into a market that, it validates the hell out of it. Then Data General can jump up and down and say, 'we have that product today.'"

The deal could make Data General a takeover candidate for another company. Rumors circulating on the Street as recently as six months ago put Dell and Data General together. Analysts would not comment on the likelihood or the feasibility of a Dell-Data General union.

Sequent reported a $52.5 million loss for fiscal 1998, or $1.21 a share, on revenue of $784.2 million. The company showed modest gains in its first quarter, with net income of $1.2 million, or 3 cents a share, on revenue of $194 million. The company had not yet announced second quarter results.

In early morning trading, shares in IBM dropped 0.31, to $137.06. Sequent shares dipped 0.19 to $17.25.

 

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