Beaverton -- MIDRANGE-L

Someone asked a question last week about what server group was doing in
Portland, Oregon -- the article below explains what was out there... When you
think about what IBM has not done for Sequent customers, I guess it makes the
lack of marketing in the iSeries space look pretty minor...

Janet Krueger
Rochester
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Sequent Deal Serves Hard Lesson for IBM
By WILLIAM M. BULKELEY Staff Reporter of THE WALL STREET JOURNAL

Last week when International Business Machines Corp. began a round of
about 1,000 layoffs at server operations around the country, some 250
workers in Beaverton, Ore., were among those getting layoff notices.

The action marked a quiet but ignominious end-point for IBM's
acquisition of Beaverton-based Sequent Computer Corp., for $810
million in 1999.

While IBM executives say Big Blue benefited from acquiring advanced
technology and access to markets where it had been weak, analysts and
former Sequent employees say it is hard to spot much payback to IBM
from its investment.

Last month, IBM quietly sent out "end-of-life" notices to companies
that own Sequent computers, informing them that it won't be selling
the Sequent servers after this year and will stop providing
maintenance on them after 2007. Sun Microsystems Inc. says it already
has won new customers under a competitive marketing plan
called "Project Blue-Away," which is designed to capture former
Sequent customers who are angry with IBM's abandonment of the line.

Gary Helmig, an analyst with SoundView Technology Group, says
executives inside IBM look at Sequent "as an example of how
acquisitions don't work out."

IBM chairman Louis Gerstner, who stepped down as chief executive in
March after nine years turning around and running IBM, made just four
sizable acquisitions during his tenure. Recently he has played down
acquisitions as a cornerstone of corporate strategy. Although IBM
declined to make him available to comment on Sequent, when asked
about the benefits of acquisitions earlier this year, he said in an
interview: "Almost without exception, all the great companies grow
organically."

Most analysts rate Mr. Gerstner's acquisitions as a mixed bag. The
first, Lotus Development Corp., a Cambridge, Mass., software company,
remains a significant part of IBM's software group, but most analysts
wonder if IBM got much return on its $3.52 billion purchase
price. "He overpaid, and at the end of the day, they're really in a
struggle against Microsoft," says Don Young, of UBS Warburg.

Tivoli Systems Corp., a maker of systems management software for
large computers, also was pricey. After initial fast growth tailed
off and the unit reported losses in recent years, it is turning
around again, IBM software executives say. Last year's $1 billion
acquisition of database maker Informix Corp. has helped propel IBM
ahead of Oracle Corp. in the crucial database software
business. "That was probably very good," says Mr. Young.

Acquisitions IBM made under Chairman and CEO Louis Gerstner.
Date/Announced/Company/Business/Price(billion)
June 1995 Lotus Development/software $3.52
Feb. 1996 Tivoli Systems/software $0.74
July 1996 Sequent Computer/servers $0.81
April 2001 Informix/software $1.00
Sources: WSJ research; International Data

IBM doesn't break out financial results of acquisitions separately.
But Sequent appears to be IBM's biggest failure in acquisitions.

Dan Olds, president of Gabriel Consulting Group, Portland, Ore., and
a former manager with both Sequent and IBM, says that "IBM didn't get
anything out of it. They lost several thousand employees. They
dropped the product."

When IBM bought Sequent, the 2,400-employee company was a technology
leader in linking multiple Intel Corp. chips together to create large
computers that ran specialized programs for companies that used the
Unix operating system, such as Boeing Co. and Virgin Atlantic
Airways. But with 1998 sales of $784.2 million and a net loss of
$52.5 million, it lacked the size and resources to compete with Sun
and Hewlett-Packard Co. in the Unix server market. At the same time,
its costs were too high for the high-volume Intel server market.

In 1999, IBM had problems of its own with an aged and high-priced
line of servers, particularly for its version of Unix known as AIX.
It also faced huge losses in personal computers and declining sales
in its cash-cow mainframe line. Robert Stephenson, who headed the
server group at IBM, saw acquiring Sequent as the best route to make
IBM competitive in the market for large Unix servers where Sun was
gobbling up market share.

But shortly after IBM completed its acquisition in September 1999,
the then 61-year-old Mr. Stephenson retired. Samuel J. Palmisano,
already marked as Mr. Gerstner's likely heir apparent, was given the
job of running servers.

Since then, IBM has made a strong turnaround. Its mainframes reversed
course and grew sales last year. In Unix, it developed new servers
using IBM's own Power 4 microprocessor, which outperform all
competitors in benchmark tests. Its Intel servers are gaining market
share. But Sequent played almost no part.

Sequent veterans say that Mr. Palmisano quickly made it clear he
wanted to simplify IBM's multipronged server strategy. Scott Gibson,
a Portland venture capitalist and Sequent co-founder, says the
acquisition was doomed because "the guy who sponsored the acquisition
retired."