When Lars Nyberg became chairman and CEO of NCR Corp. in 1995, he knew it wouldn,t be a walk in the park. The Dayton, Ohio,based company, then owned by AT&T Corp., was hemorrhaging red ink at the rate of $2 million a day.
Nyberg was a perfect fit; he,d earlier turned around the computer business of Netherlands-based Konink-lijke Philips Electronics. But in July 1995, just three months into his tenure, he got a rude shock: The latest of AT&T's serial restructurings would lead to his business's being spun off a year and a half later.
A native of Sweden, Nyberg, 50, still bristles at how then,AT&T CEO Robert Allen recruited him without giving any hint of the breakup bombshell. But, says Nyberg, "I can understand why he couldn,t tell me." Today the NCR chief says he can "just let bygones be bygones. I,m happy with the outcome."
Nyberg quickly changed the company's name from AT&T Global Information Solutions back to NCR , the initials of its original incarnation, National Cash Register, dating back to 1884 , and withdrew from computer manufacturing. He overhauled management, streamlined the sales organization and pared dozens of business lines down to three: automated teller machines and financial transactions, retail store automation and data warehousing.
Although revenue was flat last year, at $5.9 billion, net income improved 22 percent, to $217 million. This has met with at least qualified approval from investors, but NCR's price-earnings ratio of 20 still trails those of rivals like point-of-sale market leader IBM Corp. (23), database giant Oracle Corp. (29) and ATM maker Diebold (44).
Recently trading at around $43, NCR's shares are $7 below their 52-week high and about $10 above the company's January 1997 IPO price. Its market cap of $4.3 billion still lags the $6 billion that AT&T paid for the company in 1991, but it's enough for Nyberg to be cautiously considering acquisitions of his own. Says he, "If you bet the farm, you might lose your company in the process, so I,m pretty careful."
Still, Nyberg's remaking of NCR is very much a work in progress, and it does involve a significant gamble. The financial and retailing businesses are steady cash generators, accounting for roughly half of NCR's 2001 revenues and virtually all of its net income. But Nyberg is steering the company toward data warehousing. He sees this software services market growing 20 percent annually over the next several years, more than double the growth rate of NCR's more mature businesses.
NCR's Teradata division supplies large-scale data storage systems that major retailers, financial institutions, airlines and telecommunications firms use to aggregate and analyze customer information. The technology is evolving toward what Nyberg calls active data warehousing, which enables Teradata customers like Continental Airlines and Wal-Mart to sift rapidly through massive amounts of data on individual preferences and to tailor product and service offerings accordingly at points of sale.
"The appetite for data is unlimited," asserts Nyberg. And Teradata is just beginning to show its potential, having turned profitable only in last year,s fourth quarter.
Nyberg discussed the transformation of NCR with Institutional Investor Assistant Managing Editors Jeffrey Kutler and Subrata N. Chakravarty.
Institutional Investor: What, exactly, needed fixing at NCR?
Nyberg: NCR was known for being very careful with expenses, a bit slow-moving, risk-averse. When AT&T took over it lost all of that. It spent a lot of money. Its vision changed every year because it had a succession of CEOs. It was also in something like 50 different businesses , I,m not sure exactly how many there were , trying to be everything to everybody. At the same time, the computer industry was moving away from proprietary hardware toward PC-based systems. Expenses were up dramatically, and the bottom line was easy to predict: huge losses.
Are you satisfied with the transformation so far?
I,m pretty proud of what we have achieved, although we still have a big chunk of work left to do. But the company is back. It is clearly a survivor. We have fundamentally changed the way we operate; it used to be a multinational federation, where every nation was independent from each other. Every NCR country had a boss who thought he was the emperor, next to God, who was supposedly me. Now it's one global organization with one strategy. We got down to our three basic businesses: store automation, which is our heritage, where we are No. 2 in the world [after IBM]; ATMs, where we are No. 1; and the computer business. We eliminated the old computer business in two steps, first by getting out of PCs in 1995 and then more gradually exiting the higher-level server business, which was a bigger contributor to revenues. We replaced that with Teradata, which today looks like a very smart move, but NCR had acquired it in 1991 for all the wrong reasons.
Why did NCR buy Teradata?
The two companies had a partnership in the 1980s; Teradata sold database technology that ran on proprietary hardware that NCR manufactured. When NCR got acquired by AT&T, NCR ended up buying Teradata. I think they bought it to protect the hardware business, but they didn,t do anything with it. When I came in ,95, it was losing money, wasn,t growing, and nobody in Dayton really understood what it was.
What did you see that others didn,t?
To some extent it was vision. Teradata had something that others didn,t have , the technology was better than anybody else's , so why not? But then I think we were also a bit lucky, in that the market came our way. By ,98 and ,99 there were no longer just one or two customers that needed capable, large-scale database technologies. Suddenly tens and hundreds of customers had this need. And there is built-in growth: Our typical customer doubles the size of its data warehouse every 18 months. In 1995 Teradata's biggest customer, Wal-Mart, had a database of an unheard-of six terabytes, or 6 million megabytes. It was thought that Wal-Mart was the one company in the world that needed six terabytes. At the end of last year, Wal-Mart had more than 100 terabytes , and it wasn,t our largest customer. SBC Communications had 125 terabytes.
How does Teradata match up with other database specialists like Oracle and Sybase?
Oracle and Sybase are more focused on online transaction processing systems, which are very predictable. Take credit cards: You can arrange the data on card numbers, expiration dates, credit limits and so forth in a few discrete buckets so that you get the answers quickly. The database might be huge , one, two, five tera-bytes , but that's not data warehousing. Data warehousing is complex questions, totally unpredictable, that require you to scan all the data in 6,000 buckets at the same time. A query that comes in doesn,t go to the first bucket, and then to the second bucket, and so on. It goes to all the buckets at once, picks out the information that is required and sends it back. It makes it possible for, say, a retail marketer to ask how much of a certain product was sold yesterday in Ohio stores while it was raining. That is not a predictable question, and you can,t arrange the data to guarantee a quick answer. That's why you need Teradata's technology, which is a massively parallel processing architecture.
Are you worried about an Oracle or an IBM attacking your niche?
They are 800-pound gorillas that can outspend us any day of the week. But you cannot invent this technology in six or 12 months. Analysts tell us that we have a two- to three-year lead on the competition in technology. IBM has 600 different kinds of businesses. We live and die with this. I think that's why we are successful.
Are you ready for the next leap in storage technology?
Absolutely. Storage capacity keeps getting cheaper, and processing capacity is going up. A one-petabyte , 1,000-terabyte , system is probably not too far off. There is no technical reason you can,t have a five-petabyte system; I expect to have customers at that level in five to eight years. This is just exploding, and there are no limits to the amount of data that you,re going to see stored.
How has the technology market slowdown affected NCR?
The recession hurt the Teradata business first last year, before ATMs, and my theory is that it will come out of it first. We see people who postponed spending last year coming back, so I am optimistic about the second half. But it's a long way back. We saw the telecommunications and retailing industries essentially stop spending last year. Finance didn,t cut back as much, but nobody is spending freely. We helped ourselves by cutting expenses, which lowered the breakeven point for Teradata, so we know it will be profitable this year.
