The Sega "64X" almost happened. It would've been a Saturn upgrade cartridge/card for either the cartridge slot or the port at the back. The upgrade was supposed to contain a Lockheed-Martin Real3D GPU and possibly a PowerPC CPU, giving the Saturn better-than-MODEL 2-arcade capabilities, even a decent fraction of Model-3, perhaps as much as 50%. This upgrade would've been released in either 1996 or 1997. Its main competitor in terms of 3D performance would've been the unreleased 3DO M2 console and the 3DFX Voodoo1 cards for PC, but the upgraded Saturn would've surpassed both.
BTW, it was Martin Marietta/Lockheed Martin that developed the graphics techology for SEGA's Model 2 and Model 3 arcade boards The Real3D chip that would've gone into the Saturn upgrade, either Real3D/100 or i740, was the little brother of the Real3D/Pro-1000s use in the MODEL 3 board, and more powerful than the older, pre-REAL3D Martin Marietta chipset in MODEL 2.
The Saturn upgrade could've been followed up by an even more powerful, standalone next-gen console sometime between 1998 and 2000, based on a newer generation Lockheed Martin Real3D GPU, with greater performance than the MODEL 3 Step 2 board (Sega's best arcade hardware at the time). This console would've been in place of the hardware that became Dreamcast. If coupled with DVD and broadband, I have no doubt it would've surpassed PS2, at least in terms of hardware, and gained a similar level of developer support. Microsoft would not have had to go out on its own with the Xbox, they'd have just allied themselves even more closely with SEGA, to fight Sony.
From Feb 1997 EGM:
Next Generation had an article in 1995 about "Saturn 2" that was basicly the same thing. Although at the time it was going to be *either* an upgrade for Saturn *or* a new console, not both.
Also, a segment from an article called "The Dreamcast Story" from the website
Totalgames.net (no link, its broken) which says basicly the same thing:
As soon as any console is launched, work is usually underway on a replacement but the Saturn's troubles gave this process an unusual urgency for Sega. By 1995, rumours surfaced that US defence contractors Lockheed Martin Corp. were already deep into the development of a replacement, possibly even with a view to releasing it as a Saturn upgrade. There were even claims that during Saturn's pre-launch panic a group of managers argued the machine should simply be scrapped in favour of an all-new LMC design.
Sega originally entered into partnership with LMC to solve problems with its Model 2 coin-op board, however by 1995 the relationship had soured somewhat with the Model 3 board suffering massive delays.
If Sega had used Lockheed-Martin's Real3D technology to upgrade the Saturn (or replace it) these are the kind of real-time visuals that would've been possible:
Superior to MODEL 2 arcade, Nintendo 64, 3DO M2 and 3Dfx Voodoo1.