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Sun looking to acquire Encore storage technology

The $185 million deal could save Encore and give Sun a foot in the door to the data center

By Robert McMillan

May  1997
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Mountain View, CA (May 28, 1997) -- Looking to get its foot in the door to the lucrative high-end data center market, Sun Microsystems Inc. announced today that it intends to acquire the storage products arm of Encore Computer Corporation (Fort Lauderdale, FL).

Sun has signed a non-binding memorandum of understanding to acquire the business for $185 million. The deal would give Sun Encore's Infinity SP line of storage processors as well as the DataShare software that runs them. According to a company spokesperson, Encore would use the proceeds of the sale to refinance its operations and focus on the real-time applications market that has been its bread and butter since 1961.

Sun executives declined to comment on the negotiations, but it seems likely that a deal will be struck before June 30, 1997, when Encore is due to repay the balance of a $63 million in debt owed to Gould Electronics Inc., a subsidiary of the Japan Energy Corporation. According to its May Securities and Exchange Commission filings, Encore management "does not believe it will have sufficient cash to make the mandatory payment on June 30, 1997, without proceeds from the sale of assets or a refinancing or restructuring of the Credit Agreement." If Encore cannot secure financing, the SEC filings say, "it may be unable to continue its normal operations."

Encore has been steadily loosing money throughout the 1990s. It reported a $20 million net loss for the first fiscal quarter of 1997.

The deal would be a good one for Sun, according to John Young, vice president of enterprise systems planning with the Clipper Group, a research firm based in Wellesley, MA. He says that Encore's Infinity SP product is not just another storage box. "What the Infinity SP provides is the ability to share data between traditional mainframe and open systems environments by using a single copy of data" -- something that high-end storage vendors like EMC Corporation and Hitachi are not expected to deliver until the end of 1997 at the earliest, according to Young.

Disks within Encore's Infinity SP can be accessed via channel-attached mainframes, SCSI-attached hosts, or network-attached clients using software like NetWare, TCP/IP, or AppleShare. According to Encore, this eliminates the need for bulk file transfers across the network or between storage environments.

By Young's reckoning, if the Encore deal goes through, Sun "would have a limited window, which would appear to be six to nine months, in which to establish a limited market presence" as a storage vendor in mixed mainframe and Unix environments. Young adds, "it gives them a very sophisticated data sharing facility for leveraging themselves in enterprise spaces."

EMC disputes this claim. Though a company spokesperson declined to comment directly on Encore's technology, he was predictably cool on the Infinity SP. Encore's storage products had been shopped to "virtually everyone in the industry," he said, "and the fact that no one, to this point, has done anything with it speaks for itself."

EMC product manager John Howard says that while his company did look at the Encore technology, "they didn't have anything we are seeking."

In 1995, an agreement between Encore and Amdahl Corporation that would have seen Amdahl become the exclusive reseller of Encore's storage products was abruptly terminated. Sources close to Encore say that the deal was killed because of pressure from Amdahl shareholder Fujitsu Limited, which also manufactures storage products.

Wall Street seemed less than impressed by the news. Encore's stock was down 35 percent to 1 3/32 on a volume of 1,273,000 today.

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