When Encore Computer Corp, which has just announced plans to sell off its last remaining business and liquidate (See Top Stories), was formed in 1985 it appeared to have a bright future. Led by three industry luminaries, Ken Fisher, former head of Prime Computers, Dr Gordon Bell, father of the minicomputer, and his colleague, Henry Burkhardt, Encore attracted $47m in venture funding without a product to its name. The company launched an IPO soon after. Encore’s three founders had very different ideas for the company and bought disparate pieces of technology that they then sold after failing to make any money. By 1987 Fisher was the only co-founder left and the financial situation was so dire that he was forced to pour in $3m of his own money. By then the company had begun building fairly innovative, massively parallel processing systems, but using a chip that the industry had given up on – National Semiconductor’s NS32000. The company branched out into storage sub-systems in 1994, launching the Infinity SP system – a storage device designed to enable real- time data sharing between mainframe and Unix systems.
By Krishna Roy
Encore was encouraged to develop the system by Amdahl, which initially pledged to sell it under the Amdahl brand name. However, just a few months before the system was due to be launched, Amdahl pulled out of the deal, leaving Encore with a product that it had no experience of marketing and selling. Encore’s attempts to sell Infinity, which is regarded as a technically sound product, have been dogged by poor marketing and sales ever since. By 1996 the company’s figures were so bad that it took to reporting on its finances quarter by quarter – fiscal 1996 losses were $70.7m on revenues of $47.6m. Encore hit an all-time low in April 1996 when it was kicked off Nasdaq for failing to meet equity requirements. The company’s sole savior has been the giant Japan Electric Corporation (JEC) which became involved with the company after it bought Gould Inc. JEC bought Gould for its copper foil business, and was so eager to divest itself of the company’s computer division – a business of which it knew nothing about – that it agreed to give Encore a bridging loan to buy the minicomputer company. Encore had purchased Gould Computer Systems in 1989 with $140m it had borrowed from JEC, which in return gained a 33% stake in Encore. Encore has re-arranged the credit terms with JEC at least seven times in order that it could continue borrowing to stay afloat. As a result it now owns 83% of the company’s common stock. However, early in the year JEC’s patience ran out and it demanded that Encore should repay some $50m in borrowings under the credit agreement plus $13.5m in interest by June 30th 1997. Encore therefore had to find a way of paying its debts – and quickly – and the $185m deal with Sun Microsystems Inc to purchase the assets, products and technology of the storage business appeared the easiest solution. $150m of that money went to JEC to cover the Gould debts, leaving Encore minority shareholders fuming. Robert Collins, a spokesman for the shareholders, said the deal enabled Gould and Encore to ‘cut and run’ with hard cash from Sun, even though other possible arrangements – such as OEM contracts or joint ventures – would have been more valuable to Encore and its common shareholders. Minus the storage business, Encore planned to soldier on with its real-time products, after its board of directors decreed that it should not enter the business of developing software for clustering various types of hardware using Windows NT. The board concluded it couldn’t justify the initial and ongoing investment needed to compete successfully in the business. It claimed current sales of its infinity R/T Real-Time systems were steady and that it would increase development investment in its core real-time Unix and Windows NT products. But the board engaged an investment bank firm to explore strategic options, and it appears the conclusions were all in the negative.
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