Just from memory, I can sort of see how they could have mistaken those priorities. Windowing systems (with which X11 was synonymous on unixy systems) were a big deal at the time, while TCP/IP, even networking in general, was still emerging in what probably was Coherent's target market.

Coherent did have UUCP, didn't it? In a lot of cases, that got you much further in small to mid scale environments than TCP/IP. I wouldn't even be surprised if Novell Netware would have been considered more important.