A Helping Hand For Europe's High Tech HeaviesJonathan B. Levine
Olivetti Chairman Carlo De Benedetti knows how to pick his moments. Since the 1989 breakup of a computer partnership with American Telephone & Telegraph Co., he has flirted with everyone from Dutch giant Philips and Britain's ICL to IBM in search of a replacement. Now, with U.S. companies waging a fierce fight for European market share and hungry for allies, De Benedetti is making his move. On June 26, he exacted a princely price--about $300 million--from Digital Equipment Corp. for a 10% stake in money-losing Olivetti. In return, DEC gets to pump its new workstation technology through Olivetti's vast European sales network in competition with IBM, Hewlett-Packard, and Sun Microsystems.
As European high tech undergoes a dramatic shakeout, a wave of technology alliances and investments is washing over the Continent. Sapped by big losses, such leaders as Groupe Bull, Philips, and Thomson are fast shedding nationalistic pride and seeking the technology and capital they need to survive. They're getting some help from each other, but increasingly such aid is coming from opportunistic foreign rivals. As the politically correct partners of choice, Americans and their technology are gaining influence. For now, the more cautious Japanese seem to be losing ground.
Northern Telecom Ltd. is among those looking to cash in on the shakeout. On July 2, the Toronto maker of phone equipment was expected to agree to pay more than $100 million for at least a 20% stake in the ailing communications unit of French conglomerate Matra. For starters, the two plan a joint venture in cellular-phone networks. Matra gets the capital it desperately needs to enter new, high-growth markets, and Northern gets a foothold on the Continent. Other projects in switches could help Northern realize its ambition to rival European giants Alcatel and Siemens by the end of the decade.
HOUSE SNUB. Such linkups, driven by the rising costs of research and development, have been growing for years. But in Europe, any cooperation beyond sharing basic research has been rare. Now, executives are realizing that unless they become more competitive fast, the single European market will give U.S. and Japanese rivals such an edge that Europeans may never recover.
As one way to stay in the game, Philips and German rival Grundig recently merged their VCR and camcorder businesses to combat market-share gains and price-cutting by Sony Corp. and Panasonic Co. And in a rare snub to its in-house chip unit, Philips is setting up a joint design center with Motorola Inc. to make video circuits critical to a new multimedia compact-disk player. The U.S. chipmaker hopes to widen the pact to other products and gain the expertise it needs to reenter the consumer-electronics market, which it abandoned in the 1970s. As for Philips, it is a sign that "we can't afford the luxury to go it alone anymore and survive," says a strategic planning executive.
One reason is that the European Community can no longer be counted on to protect the home teams at any price. Last winter, the EC refused to endorse fully a high-definition TV standard developed to help Philips, Thomson, and Nokia. Protectionist howls from such outspoken leaders as Thomson Chairman Alain Gomez, who exhorts the EC to raise tariffs against low-cost Japanese electronics imports, have fallen on deaf ears. While EC Commission President Jacques Delors wants to boost annual R&D spending 62% by 1997, totaling $23 billion over five years, even that now appears dead in the wake of post-Maastricht budget wrangling.
ALPHA BET. Technology, in fact, may not be in as short supply in Europe as strategic and marketing skills. With only 7% of Olivetti's $7.4 billion of sales in North America, says De Benedetti, "mostly, what we need is help to become a global--not merely a European--player."
That's where Digital could come in. Beyond using its superfast microprocessor, Alpha, in the workstation wars against IBM and others, Olivetti also sells PCs and notebook models to Digital for resale in Europe. The Italians hope the new alliance will prompt Digital to buy more--up to 100,000 units this year from 60,000 in 1991. The deal to date doesn't go beyond Alpha, but the two have even discussed how they might comarket products and services in both Europe and the U.S., such as in banking and retailing. "There's potential for us to work much more closely on a global basis," says Peter J. Smith, Digital's vice-president for European marketing.
The tightening transatlantic bonds may not sit well with the Japanese. The Digital-Olivetti deal and a similar axis formed in February by IBM and France's Groupe Bull appear to curb the chances of Hitachi Ltd. and NEC Corp., the Europeans' respective suppliers of mainframes, from expanding ties into other computer sectors. Of the Japanese majors, only Fujitsu Ltd. now has a firm hold through its 1990 purchase of Britain's ICL. The surprise isn't that the Japanese didn't act faster but that the Europeans and Americans waited so long.
BIG DEALS ON THE CONTINENT BULL Sells 5.7% stake to IBM for $100 million and adopts its microprocessor technology MATRA Sells 20% holding in communications unit to Northern Telecom for more than $100 million and forms cellular-phone venture OLIVETTI Sells 10% interest for about $300 million to Digital Equipment and uses its advanced processors; forms office-printer joint venture with Canon PHILIPS Merges VCRs, camcorders in joint venture with Grundig; co-designs consumer-electronics chips with Motorola DATA: BW