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SEL/GOULD/Encore History

INTRODUCTION

During the time I worked on SEL MPX computers, the Systems Engineering Laboratory (SEL) company that designed and built these computers was acquired by GOULD Electronics (1980) and GOULD itself was subsequently acquired by Nippon Mining (1988). The GOULD computer division was subsequently acquired by Encore computer. The original SEL manufactured computers kept changing hands!

The SEL computers were used in oil exploration, flight simulation, energy management and nuclear power plant simulation.

Systems Engineering Laboratories

SEL was founded and incorporated in Fort Lauderdale, Florida, in 1959. They were involved in the beginning of the minicomputer trend, going from 16-bit computers to larger architectures with a 24-bit model in 1966. SEL built high-performance electronic systems for industrial monitoring and control. Later on they built the SEL-32 line of minicomputers for real-time systems.

GOULD Expansion

Why did GOULD want a computer company?

William T. Ylvisaker was the GOULD CEO since 1967. Back then it was mostly a maker of batteries used in cars and in industrial equipment, as well as assorted other products, with sales of little more than $100 million annually.

Fifteen years after he began the transformation of GOULD Inc from a stodgy battery-maker into a go-go manufacturer of electrical equipment and auto parts, pushing annual sales past the $1B mark in the process, Ylvisaker was wrapping up his second makeover of GOULD. This makeover turned GOULD into a hot high-technology company with interests in semiconductors, microcomputers, factory automation and sophisticated electronic equipment used in the medical and defense fields.

With the closing of the company's lead-acid battery division, GOULD severed the last ties to the business for which it was known for more than half a century. GOULD will then have finished a three-year metamorphosis that saw the company sell off three-quarters of its operations and invest the proceeds in a variety of fast-growing businesses that the CEO believed could triple the company's sales to $5 billion, at least that was the plan!

SEL GOULD Encore Logo GOULD moved quickly acquiring nine companies in three years in the computer, semiconductor, factory automation and medical instrument fields. The two major purchases were Systems Engineering Laboratories, a maker of 32-bit microcomputers, and American Microsystems, a maker of custom semiconductors.

The two companies were the centerpieces of the new GOULD, providing muscle and resources for the growth of the other sectors of the company, most of which were based in some way on computer or semiconductor technology. SEL was purchased by GOULD Electronics in 1981 and was operated essentially unchanged as the GOULD Computer Systems Division (CSD). GOULD's new bold strategy was to find and exploit market niches. But it was short lived.

Nippon Mining comes knocking

GOULD was acquired by Nippon Mining Company in 1988. At the time, it was the fourth-largest Japanese acquisition of an American company. GOULD Inc was acquired by the Nippon for $23.25 a share, or about $1.1 billion (1988) in cash. The acquisition ended a four-year effort to salvage GOULD, which in the early 1980's had tried to transform itself from a traditional Rust Belt manufacturer to a high-technology computer, semiconductor and military contracting concern. GOULD acquired a large long-term debt burden that reached more than $350 million by the end of 1987. Along the way under Mr. Ylvisaker (CEO), acquired a number of frills, including a polo club, corporate jets and Florida real estate. These were unrelated parts to its core business and a cash drain.

Why was Nippon interested in GOULD?

Nippon appeared most interested in several materials technologies that were developed by the two companies during a series of joint ventures. The two jointly owned the Gould Nikko Foil Company, which produced copper foil that is used widely in electrical and electronic equipment.

As regards the computer division acquired from SEL; "We don't know about computers. We will study that one carefully" said Peter Rona, president of the IBJ Schroder Bank and Trust Company and a financial adviser to Nippon Mining. In the end, as part of the U.S. government approval of the deal, Nippon Mining was required to divest the GOULD computer division.

SEL computers were used in many military flight simulators but because of US government regulations forbid foreign companies from owning control of companies providing key components of the national defense ecosystem, Nippon had to sell the SEL division. Nippon 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. Nippon in essence paid Encore to buy the computer division. In 1989, Encore (about 250 employees) acquired GOULD Inc.'s computer systems division (about 2500 employees) and soon after moved its headquarters to GOULD's Florida location.

The strategy behind Encore's acquisition of GOULD's Computer Systems Division was simple. Encore combined its own high technology symmetrical multiprocessing research and design advances with CSD's microprocessor-based systems and high-speed reflective memory system. The combination of high technology laid the groundwork for the development of Encore's Infinity 90 Series.

Encore History - Great expectations

Based in Marlborough, Massachusetts, Encore was an early pioneer in the parallel computing market. Although offering several system designs beginning in 1985, they were never as well known as other companies in this field such as Pyramid Technology, Alliant and the most similar systems; Sequent and FLEX.

Encore was founded in 1983 by: Kenneth Fisher, former CEO of Prime Computer; Gordon Bell, an engineering vice president from Digital Equipment Corporation (DEC) responsible for the development of the VAX; and, Henry Burkhardt, co-founder of Data General and Kendall Square Research. Their goal was to build massively parallel machines from commodity processors. The trio intended to develop and market an extremely broad range of products, including desktop computers and large mainframes. With the market for computers worth over $31 billion at the time, Fisher and his colleagues felt certain they could secure a healthy portion of it for Encore.

Encore appeared to have a bright future. Led by the three industry luminaries, Ken Fisher, Dr. Gordon Bell 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.

At first, everything went according to plan. A technical staff was hired from the research laboratories at Carnegie-Mellon University in Pittsburgh and a headquarters was established in Wellesley Hills, Massachusetts. Bell undertook the supervision of the engineering and design department, while Fisher and Burkhardt concentrated on finance, sales, and marketing. Encore acquired Hydra Computer Systems, Inc. to develop processors, Foundation Computer Systems, Inc. to write software, and Resolution Systems, Inc. to produce the terminals. The number of employees shot up to 110.

Their first design, the Multimax, was released in September 1985. This was one of the first commercial designs to make use of bus snooping, allowing many processors to share the same memory efficiently.

Encore's new open systems technology did not generate the level of demand and income that management initially anticipated. At the same time, the company's older technology reached the final stages of its marketability and began to experience declining sales. The increasingly precarious financial position of the company began to affect the working relations of the founders, and Bell and Burkhardt decided to resign. Fisher remained chief executive officer and chairman of the Board but was confronted with what seemed to be intractable financial problems.

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 processor 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.

Faced with declining revenues and a smaller customer base than originally projected, Fisher responded aggressively by implementing a complete restructuring of the company. He reduced Encore's number of employees, consolidated manufacturing and warehousing facilities, and devoted even more money to research and development. Pinched to generate a sufficient cash flow to pay for operating expenses, Fisher looked for help from the outside.

In 1991, Encore entered into an agreement with Japan Energy Corporation (JEC) and a number of its subsidiaries to provide working capital for the financially strapped high-tech firm. The agreement included a revolving loan program amounting to $50 million and a refinanced loan amounting to $80 million. Fisher also agreed to a large exchange of stock for help in paying off Encore's growing debts.

Encore turned, as did most of the market (including DEC), to RISC-based CPUs. They chose the Motorola 88000, and released the Encore-91 in late 1991, supporting two (9102) or four (9104) CPUs running at 25 MHz. A bottom-up redesign for the new processor led to the Infinity 90 series, starting with the Infinity 90/ES in 1994. The ES supported between 2 and 2045 Motorola 88110 CPUs running at 50 MHz. Several newer machines in the Infinity 90 series were released, but Encore again found its CPU supplier changing direction. Motorola dropped development of the 88000 series to concentrate on the PowerPC.

Trying again, this time in the high-performance real-time market, Encore turned to the Alpha 21064 to create the Infinity R/T Model 300, which first shipped in late 1994. By this point the massively parallel market was being encroached on by machines made up of large numbers of commodity machines and Encore released a single-CPU workstation running OSF/1, the Series 90 RT 3000. It was intended to be used either standalone or as a node in a massively parallel machine.

Encore also worked on a modified RISC design known as the RSX. This was intended to operate in two modes, one as a normal CPU node for clusters and in CONCEPT/32 compatibility mode, which emulated earlier custom hardware from the SEL real-time side of the company.

Trouble ahead

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. Sales of $215 million in 1990 dropped to $153 million by 1991.

With the assistance of JEC, Fisher was able to obtain Encore additional time to prepare the Infinity 90 Series for market. When the Infinity 90 product line was introduced, however, the overall market conditions and the demand for open systems products did not increase significantly. Sales for 1992 dropped to $130 million.

By 1996 the company’s sales 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 the $2M equity requirements. The company’s sole savior has been the giant JEC which became involved with the company after it bought GOULD Inc.

The JEC loan

Encore purchased GOULD Computer Systems in 1989 with $140M it had borrowed from JEC, which in return gained a 33% stake in Encore. Encore had re-arranged the credit terms with JEC at least seven times in order that it could continue borrowing to stay afloat. As a result JEC owned 83% of the company’s common stock. However, early in the year JEC's patience ran out and they demanded that Encore repay $50M in borrowings under the credit agreement plus $13.5M in interest by June 30th 1997.

Encore had to find a way of paying its debts and quickly! 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. A group of rebels threatened legal action when 80% of the proceeds of the sale went straight to majority shareholder, JEC. 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. Shareholders ended up with virtually nothing from the sale.

Without the storage business, Encore planned to continue operating with its real-time products. The 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. The Board engaged an investment bank firm to explore strategic options, and it appears the conclusions were all in the negative.

Financial Losses and Downsizing

In 1991 Encore Computer shut its plant in Marlboro, Mass., laying off nearly all 200 workers there. The company had been hit hard by economic problems exacerbated by continuing delays in shipping its new Gemini computer.

William Avery, Encore's Vice President in charge of technology, told Marlboro employees that the plant would be shut and that he would be leaving to create a start-up company. Up to 20 employees in the Marlboro operation, which housed the research and development team building the newest computer, were offered the opportunity to relocate to Fort Lauderdale, while the rest were informed that the company planned to phase out the plant over 12 months. In 1991, Encore had slightly more than 1,600 employees.

Encore lost $9.4M, on revenues of $40M, in the first fiscal quarter of 1991. It was hurt by losing a $460M NASA contract to IBM. Sales dropped from $215M in 1990 to a projected $170 million for fiscal 1991. The company attributed the projected sales drop to delays in the Gemini computer series, which had been promised to customers before the end of 1990.

Encore, however, endured another disappointing year in 1993. The declining demand for open systems technology exceeded the projections of company management and, as a result, revenues continued to spiral downward. Estimates for international sales and growth of non-traditional computer markets were also significantly higher than actual sales and growth rates.

At the end of fiscal 1993, the company reported sales of $93 million, a $35 million decrease from the previous year, and an operating loss of over $69 million. In light of these problems, Fisher was forced to reduce Encore's work force by 10 percent in June and an additional 8 percent in December of the same year. The company's European work force was reduced by approximately 20 percent. It marked the third straight year that the company had cut the number of workers it employed. Other cost-cutting measures included the elimination of excess sales and service offices.

Parts of Encore were sold off over the years, with the last major spin-off being their Storage Products Group, sold to Sun Microsystems in 1997. This left the company consisting primarily of their real-time group (the original SEL core) and returned to this business niche after renaming themselves Encore Real Time Computing.

Gores buys Encore - Liquidation Sale!

Unable to sustain continuing losses, in 1998 Encore agreed to sell off its last remaining business, real-time systems, for a paltry $5.5M to Gores. The intention was for Encore to be liquidated. Without its storage business, the Infinity real-time systems and software products were all that was left.

Under the terms of the sale, Gores operated Encore's real-time business between June 1, 1998 and January 8, 1999 for a fee of $100,000 per month, refundable to Encore on closure of the deal. During that time, Gores contracted with Compro to provide hardware service and refurbished products, reorganized Encore's European branches, and signed a new agreement with Encore's Japanese distributor. The management company also met with major customers and tailored the business, accelerating software releases and planning software and hardware upgrades to suit.

Under Gores' management, sales increased 20 percent over the six months ending June 1998, and the real-time business began generating a net profit. The sale closed on January 8, 1999, and Encore ceased operations.

Los Angeles-based Gores is a twenty-year-old (in 1998) high technology business management organization that has acquired such companies as project management firm Artemis Management Systems, document management company Information Dimensions Inc, manufacturing software house Computer Design Inc, and product data management firm Applicon Holdings Inc over the last few years. Affiliate Gores companies represent consolidated revenues of nearly $100M (1998) and an annual growth over 35%.

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Source: Encore U.K.

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Compiled on 08-16-2023 06:27:55