At the time, it was hailed as a bold and brilliant stroke: After eight years of false starts and $2 billion in losses in computers, American Telephone & Telegraph Co. made itself a player in a crucial business with the $7.5 billion hostile takeover of computer maker NCR Corp. in 1991. And none of the computer companies that AT&T could have bought had a more global sales organization, more modern product line, or cleaner balance sheet than did the Dayton-based NCR. Sure, AT&T paid 20% more than the market price of NCR before the takeover began, but mostly Chairman Robert E. Allen was applauded for acting so decisively.
Today, the glow surrounding the NCR deal is all but gone. And the independence NCR was given as a newcomer to the AT&T family is no more. After the merger, AT&T let NCR management choose which product lines--and which employees of AT&T's computer division--to keep. And AT&T management was rewarded with its first-ever profit in computers: $288 million on revenues of $7.1 billion last year.
That was then. Now, NCR is feeling the heat from AT&T brass in Basking Ridge, N.J. One of the things that made NCR a standout two years ago was its early commitment to low-cost, microprocessor-based computing. Yet NCR hasn't fully skirted the economic forces that are rocking IBM and Digital Equipment Corp., among others. Despite its early start in low-cost "open systems," neither NCR's cost structure nor its marketing strength has kept pace with the market's wrenching changes.
"NCR's in a very tough industry right now," says Blake Bath, an analyst at Sanford C. Bernstein & Co. "Nobody's making a lot of money in computers." Indeed, in the third quarter ended Sept. 30, NCR's revenues were down 2% from a year earlier, and a $23 million restructuring charge contributed to a $49 million operating loss.
YOUNG TURKS. With competitors catching up with NCR in technology, prices plummeting in PCs, and business softening in Europe and Japan, Allen installed troubleshooter Jerre Stead as NCR's chairman and chief executive officer last May, replacing longtime NCR executive Gilbert P. Williamson. "They have not been on a path to meet our longer-term expectations at the acceleration rate I would like to see," says Allen. "Jerre is going to make that difference." A telling sign of the times: In the next few weeks, the NCR name may disappear.
Stead became a star at AT&T by turning around its private branch exchange (PBX) business, and once again he has his work cut out for him. Few of the "synergies" from combining computers and communications have materialized. Opportunities in multimedia and vast networks for processing financial and retail transactions remain more dream than reality. Allen says some NCR executives "were inclined to take advantage of their independence and not look for the obvious synergies."
"The real paybacks are in the future," concedes Stead. But not the distant future, he insists. He wasted little time before attacking bureaucracy and shaking up NCR's staid, inbred culture. An early retirement program is expected to help trim NCR's work force of 50,000 by as much as 15% by 1995. Allen says more cuts are likely. Meanwhile, a flatter NCR organization has elevated a new rank of younger top executives, too.
Combining the spirited, can-do delivery of a motivational speaker with the cold eye of a financial executive, Stead has made a special effort to defuse internal rivalries and get various NCR factions to work together. He calls it "putting the moose on the table"--a motto now emblazoned on T-shirts for all to wear. "He's got a great record," says William N. Deatherage, an analyst at S.G. Warburg Securities. "He's probably the ideal executive to put there."
Stead's immediate goal is to get NCR profitable and growing again. That means invigorating NCR's creaky marketing efforts. Also in need of attention is the company's core, midrange computer business, which has lost its technical edge.
"JUICE WITH JERRE." Stead's first move was a worldwide series of "Juice with Jerre" meetings with employees. He also has met with more than 500 customers, he says, and handed out his home phone number to thousands more at various group meetings. To make NCR more agile, Stead has begun creating some 750 customer-focus teams around the world. Combining marketing, sales, technical, and other talents, they're dedicated to doing whatever it takes to, in Stead's words, "delight" customers.
Meanwhile, Stead is investing heavily where NCR holds its strongest technical advantage--a new breed of large-scale computers that can do the work of IBM mainframes for a third or less of the cost. Through its acquisition of Teradata, an early maker of "massively parallel" computers employing scores of microprocessors, NCR has pulled well ahead of Big Blue in replacing conventional mainframes. Massively parallel computers are especially good at sifting through vast data bases, processing volumes of retail transactions and, AT&T expects, even delivering video programming to homes. NCR and Teradata have installed more than 400 such systems, giving NCR an 80% market share, vs. 0% for IBM.
As early as Nov. 9, however, IBM is expected to strike back with the first of a series of planned parallel-processing add-ons for its mainframes. Pricing and performance details remain sketchy, but no one is discounting the formidable marketing power Big Blue can bring to bear in defense of its core franchise.
As for AT&T, it remains convinced that buying NCR was the right thing to do. "I don't have concerns about the strategic decision we made," says Chairman Allen. "Everything considered, given the timing, I'd say it has met our expectations in the short term." Now Stead is there to make sure the longterm payoff materializes, too.
WHAT AT&T'S NEW COMPUTER CHIEF IS UP TO REVAMPING TOP MANAGEMENT Old guard is out, replaced by younger executives from within NCR and from parent AT&T WORKING MORE CLOSELY WITH AT&T Joint research with Bell Labs; emphasis on deals involving networking and computers; NCR name slated to disappear soon SMASHING BUREAUCRACY Hundreds of "customer-focused" marketing teams are being formed to make decisions fast EMPHASIZING HIGH-END SYSTEMS NCR's "alternative mainframes," built from speedy microprocessors, are its strongest product line, especially against IBM