On Sept. 24, Oregon's second-largest high-tech company
will cease to exist. Investors in Sequent Computer Systems
will turn their stock over to IBM for $18 in cash per
share.
There is little doubt that the transaction will occur,
but a number of questions remain about the $800 million
Beaverton computer maker.
Last month, a WW article addressed the company's
puzzling shipping practices ("Return
to Sender," WW, Aug. 18, 1999). The story
detailed a large quarter-end shipment meant for an East
Coast customer that ended up in a Portland warehouse.
Initially, the customer, Federal Data Corp., denied
knowledge of the order, raising the question of whether
the order was really a sale that could be counted as
revenue.
Sequent officials insisted they did not book revenue
on the Federal Data shipment; to have done so could
have been improper. For its part, Federal Data later
confirmed it had been negotiating a deal with Sequent.
Since then, however, current and former Sequent employees
have provided additional information about orders that
leave Sequent's Beaverton headquarters, ostensibly bound
for customers, but then return weeks or months later
unopened.
The most recent information provided to WW concerns
what employees call the "depot process." Under this
unusual arrangement, the company cut deals with a customer
who agreed to buy a certain dollar value of computers
during a year. Instead of shipping directly to the customer,
Sequent instead sent computers to three warehouses in
the Portland area, paying the storage and financing
costs itself.
An obvious possible benefit to Sequent of the depot
process was that it could ship out the "orders" even
before the customer needed the computers, thus boosting
sales. Sequent's annual report states that "revenue
from product sales is generally recognized upon shipment."
Company officials maintain, however, that they only
ship unsold material when they expect it to "clean up"
or become a firm sale imminently.
One recent depot-process shipment raises questions
about what is a sale and what is not. Earlier this summer,
Sequent signed a two-year distribution deal with a Maryland
computer reseller called A&T Systems. On June 24--just
before the end of Sequent's second quarter--Sequent
shipped 35 separate sales orders earmarked for A&T.
Instead of going to Maryland, however, the orders were
trucked to a Washington County warehouse.
A&T Vice President Carlton Jeffcoat confirms his
company signed a purchase order with Sequent, but says
he has no recollection of ordering the specific material
Sequent shipped. He says the material was of the type
his company would eventually want but not configured
or timed for any particular client. Jeffcoat said the
shipment would be analogous to a car dealer agreeing
to take future delivery of 100 Ford trucks but having
not yet specified the color, model or delivery date.
In other words, the shipment was made for Sequent's
benefit, not A&T's.
Ultimately, A&T and Sequent officials say, their
two-year deal was canceled when IBM launched the Sequent
takeover, and the goods were shipped back to Sequent
from the warehouse. Sequent officials say the company
booked no revenue on the A&T shipments.
In another twist to Sequent's confusing final chapter,
a former worker in the company's accounts-receivable
department told WW recently that as many as 10
percent of invoices issued were never sent to customers,
that the company issued an extraordinary number of "credit
memos" ( a document used to cancel a sale in the company's
accounting system) and that the collection of money
due Sequent was often complicated by customers never
having received the material in question.
Sequent declined to respond specifically to allegations
made by the former worker. Instead, the company issued
a statement noting that it has been audited annually
by Price Waterhouse Coopers since its founding and "stands
behind its accounting practices without reservation."
Still, data show that Sequent did a poor job of collecting
money from customers.
A 1998 survey of 41 U.S. computer manufacturers conducted
by Robert Morris Associates shows the median company
took 60 days to collect on its bills; three-quarters
of them collected their bills in 79 days or less. By
contrast, in recent quarters it has taken Sequent 110
to 120 days to collect its receivables. That places
the company near the bottom of its industry and raises
the question of how solid its sales were in the first
place.
Maybe IBM will be more effective.
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Willamette Week | originally
published September 22,
1999
