IBM's takeover of Sequent will probably have little impact on Sequent customers but is expected to provide a major boost to the development of high end Unix products.
It cost IBM more than $810 million to take over Sequent (see Newswire 12 July) and while some may have mourned the loss to the industry of another hardware company, others believe that it is probably for the best.
The deal means IBM gets some products and technology to help it compete with the entrenched Unix vendors such as Hewlett-Packard and Sun Microsystems.
The other expected outcome of the deal is that the Monterey Project, the move to create a single high volume Unix on 32bit and 64bit Intel platforms, will be accelerated. It may even become a commercial dagger aimed at the throat of Microsoft's high end NT.
Sequent was founded in 1983 and pioneered Symmetric Multiprocessing(SMP) and Non Uniform Memory Access (Numa) systems for commercial environments. In 1997, it was the world's fastest growing vendor of servers in the $100,000 to $1 million market.
The company boasted more than 10,000 installations worldwide, and in 1998 it introduced the Numacenter mixed Unix and Windows NT product targeted at the data centre.
But while Sequent could claim to be the leader in high end Intel hardware, its profits were starting to slide. It also depended on a few big customers, such as Boeing, for its key revenue.
In its last reported quarter, the first quarter of fiscal 1999, Sequent announced revenue of $194 million and net income of $1.2 million - a small figure for such a large company. It was clear that Sequent was not growing dramatically and was finding the competition tough especially from IBM.
Sequent had become a key player in the quest for a converged version of Unix. It had set up an ASP nursery and was collaborating with IBM and SCO on Monterey, which would converge the capabilities of the different Unix offerings from each of the vendors.
By the end of 1999, Sequent's Unix operating system will effectively merge into SCO's Unixware.
Bloor Research's chief analyst Martin Brampton said that by buying Sequent IBM had made sure the company did not slip under in a market that was getting increasingly competitive. There were industry fears that a stalled Sequent would be unable to bring about the necessary changes to implement its Monterey plans. By buying Sequent IBM ensured that the Monterey process would continue, he said.
"Although it is a pity to lose another player in the hardware market, the purchase is the best thing to ensure server consolidation in the Unix market," Brampton said
Gartner Group Analyst Ed Thompson said that Monterey negotiations revealed Sequent's Numa plans to IBM and revealed a huge gap in Big Blue's technology. Sequent's Numa architecture will now become pervasive across the IBM product line. (see Newswire 13 July)
"Basically IBM wanted Numa. It had been working on a similar product of its own, but it could not get it to the market on time," Thompson said.
Last year IBM began seriously looking at Numa, despite having publicly dismissed the technology, by hiring Numa software engineers and committing R&D. (see Newswire 7 August, 1998)
Although the price tag for Numa may seem high, Thompson points out that due to clever accounting and the fact that Sequent is making money, the company would not cost IBM too much.
"They only need to make about $9 million to break even - they are not really losing out on the deal," he said.
Sequent's products will become IBM branded as they are integrated into its product line. John McAdam, president of Sequent, felt the deal would clean up confusion in IBM's product line.
"Things are going to be easier especially with Monterey as the main Unix, shrink wrapped from low end to high end. IBM will obviously keep OS/400 and MVS. What Intel gives you is the ability to either go NT or Unix, or both, or go from one to the other. Currently IBM does not have that and they get it the minute they go with us, and that's a big thing for them," he said.
Thompson dismissed IBM's claims that Sequent's products fitted nicely with its own hardware range.
"All of Sequent's products overlap to some degree with IBM. I think eventually they will have to be merged much more closely in the future," he said.
Both Brampton and Thompson were concerned about the effects on the market that a reduction in the number of server suppliers would bring.
Brampton said: "This move by IBM leaves it dominant in the Unix MPP (Massively Parallel Processing) market."
Thompson added that the move left smaller companies such as Data General, NCR and Silicon Graphics out in the cold and facing extremely powerful competition. He predicted that there could be future mergers.
The possible price premium of the IBM brand concerned Peter French, head of the Sequent UK user group, even before the deal was announced. At the user group's meeting in Brighton at the end of June he worried, "what adding the IBM badge to Sequent boxes would add to the cost" in the event of an expected Sequent/IBM tie up
Gartner's Thompson said that generally users will be mostly unaffected by the change for at least 18 months.
"They will lose out a little as Sequent's sales force and after sales service is merged with IBM's - which is not nearly as good," he said.
Sequent's McAdam said: "Customers love our service and IBM is committed to continuing that. We're not going to change any customer facing staff, so they will get the same systems and the same people coming to fix them, but what they will see now is firstly, longevity of the company, and secondly, that volume we need to make sure they get all the applications they could possibly want."
Bloor's Brampton said that some users would have to cope with a "culture change" by having to deal with IBM, but since Sequent tended only to deal with large corporate sites its users were big enough to deal with it.
"A buyout could have been a lot worse for users. While IBM may not be the most popular, at least they are likely to respect Sequent's technology," he said. "While it is possible that IBM might to try to reverse Sequent's financial fortunes by increasing the price of some of its products, it is unlikely."
The market was too competitive with other players like HP and Sun fighting for a stake and unless IBM could claim some kind of added value with its Sequent products, price hikes would be suicide, he said.
However Thompson said that the deal would cause a nightmare for IBM and Sequent's business partners.
"EMC are very close to Sequent, but IBM is keen to push its storage operations and this is going to cause conflicts. Sequent's close relationship with Oracle, with whom it does 95 per cent of its business, will also cause problems for IBM which is trying to push its DV2 product," Thompson said.
Dell has patents with IBM that could mean that it would get access to Sequent technology via the back door, Thompson added.
The possible legal wrangles such conflicts could generate mean that the saga of the buy out of Sequent has a long way to go before it reaches its conclusion.
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