Paul and Thread - Article on IBM / Sequent deal: seen as commitment of IBM to Merced platform
The Sequent purchase, notes Mr. Frerichs, will give IBM a position at the top end of the market for Merced, which is due in mid-2000. Although large servers built around Intel chips are still uncommon in most businesses, industry analysts agree that soon after Merced's introduction, they will represent a large chunk of the high-end server market, which itself is growing rapidly.
redherring.com
=====================================================================
IBM invests in server technology
By Tom Davey
Redherring.com
July 14, 1999
IBM (NYSE: IBM) unveiled plans yesterday to purchase Sequent Computer Systems (Nasdaq: SQNT), a move that gives Big Blue another small but strategic soldier in its battle to take on other titans of server hardware. For the $810 million purchase price, IBM is scooping just a handful of greenbacks out of its $5.4 billion bucket of cash reserves in exchange for a fast-track entry to the market for large transaction-processing server computers that run on Intel (Nasdaq: INTC) chips.
Sequent is noted for its multiprocessor NUMA (which stands for non-uniform memory architecture) servers that make the most out of Intel chips by allowing up to 64 of them to run in a single box that handles a large number of transactions, similar to a mainframe. Sequent's key customers include Ford Motor (NYSE: F), Boeing (NYSE: BA), and National Association of Securities Dealers. Leading edge e-commerce companies such as eToys (Nasdaq: ETYS) are also selecting Sequent because they can buy a machine with a small number of processors, then scale it as the business grows.
"It's the cheapest and easiest way for IBM to establish itself for the Merced processor," says William Frerichs, an analyst with DA Davidson. He points out that IBM had not previously disclosed a strategy for using Intel's long-awaited high-performance server processor, code-named Merced. "All of IBM's competitors are going to have to reëvaluate their positions," he says.
Intel started a $300 million fund to encourage development for its Merced chip. Sequent teamed with Digital Equipment, since bought by Compaq, to create a Unix version for Merced.
IBM recently threw its weight behind Linux.
Although few would dispute the quality of Sequent's servers, the company has suffered losses due mainly to its small size and narrow product line. "The biggest problem has been our size and breadth of our product line," says Sequent cofounder and CEO Casey Powell. "It's very difficult for a company of less than $1 billion to compete with 20, 40, and 80 billion-dollar companies. We've had a great bullet but no gun to shoot it out of."
The Sequent purchase, notes Mr. Frerichs, will give IBM a position at the top end of the market for Merced, which is due in mid-2000. Although large servers built around Intel chips are still uncommon in most businesses, industry analysts agree that soon after Merced's introduction, they will represent a large chunk of the high-end server market, which itself is growing rapidly.
SOFTWARE DRIVES HARDWARE PURCHASES
IBM recently has moved aggressively to take a bigger role in the market for the Unix operating system. The market is fragmented because many of the hardware vendors have proprietary versions of Unix that run only on their machines. The OS often determines whether large businesses will buy their hardware from a particular vendor, because independent software developers tend to favor writing their software for OSs with a large market.
So recently, IBM banded together with Sequent and the Santa Cruz Operation (Nasdaq: SCOC) to combine their three flavors of Unix into a single version, dubbed Monterey, that will run on Merced. That relationship also has the endorsement of Intel, which has been pushing for years to consolidate the various Unix OSs so that software programmers can easily adapt more types of software to Intel chips.
However, most people who use the SCO version of Unix bought it through Compaq (NYSE: CPQ), a key IBM rival in the server space. Although Compaq now says it plans to offer Monterey as well as its own brand of Unix on Merced, analysts think that IBM now has developed a strong enough branding and technology relationship with SCO to siphon off business from Compaq.
Two other competitors, Hewlett-Packard (NYSE: HWP) and Sun Microsystems (Nasdaq: SUNW), are the only other major vendors that are holding on to their proprietary brands of Unix, at least for the short term. But analysts question their potential for interest from software developers as business starts to snowball for Monterey and other popular OSs such as Linux, a freeware with open-source code that is adored by programmers, and Microsoft's (Nasdaq: MSFT) Windows 2000. Both Linux and Windows 2000 will support Merced and other future Intel chips.
CHEAP CHIPS DRIVE SERVERS
As happened with the PC market, most vendors who sell servers now tend to use Intel chips and other core technology rather than developing their own. Intel building blocks let server vendors create relatively inexpensive machines with four processors. Sequent takes this a step further by linking these four-processor blocks to run large numbers of processors with a near-proportional increase in performance. Other multiprocessing schemes and multiple-box clusters have been less successful in this respect.
A low-profile company that is known mainly by tech heads, Sequent was founded in 1983 by 17 former Intel executives, who set up shop in Beaverton, Oregon, almost within a stone's throw of Intel's research and development facilities for high-end chips and servers. The two companies maintained a close relationship. While other server vendors such as Sun and Hewlett-Packard designed their own chips, Sequent based its products exclusively on Intel chips, which until recently were considered too sluggish by most server vendors.
Sequent's stock dipped to $17.25 (from $17.44) after the purchase announcement, in which IBM offered $18 a share. IBM edged up to $137.88, compared to $137.38 before the announcement.
|
