What do you do when the Asian economic crisis causes the revenue from your biggest customer to plummet from $US180 million to $US40 million? When your proprietary operating system doesn’t have enough volume to attract software developers? When the microprocessor technology you’re betting your future on suffers a scheduling set-back which sends jitters throughout the industry?
Oregon-based server company Sequent Computer Systems faced all these questions last year.
On the operations side, a major challenge loomed when number one customer Boeing was hit by payment defaults by Indonesian airline Garuda. This resulted in a number of jets decked languishing on the Boeing runway, hoping to attract new buyers. The loss of sales flooded through to Sequent to such an extent that it was forced to make what COO John McAdam describes as “a painful restructure”, cutting 250 jobs across the board. This left staff numbers at 2800, saved $US40 million in operating costs and resulted in a stronger balance sheet, McAdam says. Sequent expects to come in just short of $1 billion in revenue for 1998.
But the question of whether the company is prone to an acquisition continues to hover. Three months ago a rumour that Dell might want in on the enterprise server market (a la Compaq’s purchase of Digital) wafted through the industry but those close to Dell say it’s not in the company’s culture to acquire, but rather to form partnerships. McAdam says Data General looks a more likely candidate. He admits that Sequent is small but says a takeover would not only be hostile but disastrous as it’s an extremely knowledge-based company. But while he can’t rule out an acquisition he doesn’t dismiss the idea of Sequent as a purchaser either. “Areas like NT skills and anything that would give us more volume,” he says.
Despite these bugbears, Sequent heads appeared extremely bullish about the company’s future at the Sequent users conference in San Diego last month.
The company has been busy addressing the issue of volume, or rather lack of volume, by partnering with other Unix vendors to consolidate operating systems. Sequent plays in the highest end of the server market with is own version of Unix - Dynix/ptx and Microsoft Windows NT running on Intel architecture.
While chief executive Casey Powell is confident that NT will thrust its way into the enterprise server market, he says it was becoming too expensive for Sequent to produce Dynix/ptx. Sequent began looking for a partner, the choices being HP-UX, Sun Solaris, Digital Unix and IBM AIX.
Powell didn’t like HP’s reputation as a partner. “They don’t play on a level playing field and you have to do everything their way,” he says.
Sun was tempting but, “Sun is usually agreeable at the start of negotiations and then once the contract is signed everything changes. Solaris is designed for [the] Sparc [processor] and we felt that we wouldn’t have as much control as we wanted.
“Sun is doing really well but frankly I wouldn’t want to be in [Scott] McNealy’s place right now. He’s using the wrong processor [RISC] and I wouldn’t want to be in a position where I am not shipping NT.”
What’s the right processor?
“By definition the right processor is that which can deliver volume and that’s Intel,” he says.
With HP and Sun no-goers, Sequent was approached by Digital just after it had wrapped up its law suit with Intel. It couldn’t be involved technically with Intel but knew that Sequent could. “We signed an OEM agreement to merge our Unixes but the partnership was interrupted when Compaq bought Digital. We were then approached by IBM.”
Sequent’ signed up for IBM’s Monterey project to consolidate Unix OSes around IBM’s AIX. Under the project Sequent will also align Dynix/ptx with UnixWare by SCO (Santa Cruz Operation). Dynix/ptx will be rebranded UnixWare ptx edition in the fourth quarter of this year. In the same timeframe, both Sequent and SCO will enhance its 32-bit Intel Architecture (IA-32) with IBM’s AIX APIs (application programming interfaces) to provide a path to IA-64 Montery Unix.
What makes this different to all the other efforts we’ve seen to consolidate the Unix diaspora?
Powell says unlike the open standards groups and consortiums of the past, this is driven by IBM which has signed bi-lateral agreements with Sequent and SCO and is talking to other Unix vendors as well. As for Digital Unix, Unix unification is probably not high on Compaq’s agenda but Powell says talks are continuing.
Obviously the success of Intel is crucial to Sequent. Sequent’s roadmap ahead is based on providing both IA-32 and IA-64 platforms.
When Intel announced last year that the shipping date for its 64-bit Merced chip had fallen behind, many hardware vendors reacted by delaying work on their Merced-based servers. Meanwhile Sequent had been making much of its plans to bring out a Merced machine as soon as possible.
Powell spins what could be seen as a setback as an opportunity.
“A lot of guys were shaken up when that happened and I believe they have dropped the ball. We’ve kept on working with Intel on it and we’ll be the first out with an IA-64 system when Merced ships. It has given us the opportunity to come to market before anyone else.
“I’m not worried about Merced not being on time. Every day we check with Intel and they tell us that it’s OK. They’ve put more staff on it and they’re very serious about it not happening again. Intel doesn’t do slippage like Microsoft. In the meantime we’ll have new IA-32 machines coming out.”
The newest of these is the Numa-Q 1000 due in March - a scaled down version of the Numa-Q 2000.
Both Powell and McAdam admit that not having a lower cost, lower end option has often hurt the company in sales bids.
The Numa-Q 1000, which scales to eight processors as compared to 64 processors in the Numa-Q 2000, aims to fix the problem by expanding Sequent’s offering to compete with low end RISC machines such as the HP K Series and the Sun 3500 and 4500. But not four way servers from vendors such as Compaq and Dell.
It runs Unix and Windows NT and applications on the 1000 can be moved without any additional changes to a Numa-Q 2000 system.
However despite the expansion into the low end, Powell is clear that Sequent’s main focus remains on the data centre. In fact he claims that Sequent or at least the Intel-based enterprise server will eventually take out the mainframe. Not something IBM would want surely?
“My observation is that IBM understands that the thrust of their business is its software business,” says Powell. “Tivoli, Lotus, DB2 and all the middleware - it’s very important.
“The mainframe in a sense is a razor that accepts those razor blades. So is the RS6000. But its in IBM’s interest to make sure that any upcoming technology [such as Intel-based servers] also accepts its razor blades. NT, IA-64 and shrink wrapped Monterey etc. are all razors that IBM will use to sell its razor blades. It will also use its own Intel-based Netfinity servers. Even if the Intel architecture eventually takes out the mainframe, as long as IBM is selling its blades I don’t think it matters. IBM is a lot smarter than people give it credit for.”
So despite being something of a mouse running with elephants (IBM, Intel and Microsoft) Powell is comfortable with his strategic partnerships.
“I’m a small guy and it’s the other small guys who are the meanest, they have to be. If I (a small guy) go into a bar with three big guys, do you think the other small guys are going to start picking on me? If they do, who’s chances do you fancy?”
Asked whether he feels that Sequent customer’s are worried by the change and upheaval the company has gone through he pulls out one more metaphor.
“When the troops landed on Omaha Beach they didn’t walk in a straight line to the other end. It’s been like that for us, we’ve had to change direction many times to survive.”
Definitely an over-the-top analogy but with the jobs of 2800 people and billions of customers’ dollars invested in his decisions, that’s understandable.
Andrea Malcolm attended the Sequent users conference in San Diego courtesy of the company.