TIME: Almanac 1993/TIME Almanac 1993.iso/time/121790/1217203.000

Text File | 1992-08-28 | 5.9 KB | 119 lines

                                                                                BUSINESS, Page 69

Reach Out and Grab Someone


AT&T moves to end years of frustration and heavy losses in the
computer field with one bold $6 billion stroke

By THOMAS MCCARROLL/NEW YORK


    When American Telephone & Telegraph entered the computer
business six years ago, big things were expected to happen.
After all, the company had invented the transistor, the basic
building block of modern computers, and it had built the
nation's telephone system, which is essentially one vast
computer network. Industry analysts predicted that AT&T one day
would even challenge IBM for market supremacy. The government,
which had barred Ma Bell from the business until the phone
monopoly was broken in 1984, fretted that it might be opening
the way for the giant (1989 revenues: $36.11 billion) to
dominate the computer industry. But instead of conquering the
market, AT&T has suffered one humiliating defeat after another,
racking up huge losses in the process.

    Though many expected the company to throw in the towel, AT&T
stunned Wall Street last week by proposing the biggest
acquisition in the brief history of the computer industry,
offering to buy Dayton-based computer maker NCR for $6 billion.
When NCR rejected the initial, friendly offer, its suitor
shocked the business world once more by launching a hostile
takeover attempt. In a face-to-face showdown with AT&T's board
members in New York City, NCR management vowed to resist. But
industry analysts generally believe that the big
telecommunications firm will ultimately prevail, strengthening
NCR in the long run. Says Maria Lewis of Shearson Lehman Bros.:
"AT&T would make an ideal corporate parent." Still, the deal
carries enormous financial risks for AT&T, which had tried to
build a computer business from scratch, avoiding large
acquisitions. "AT&T will triumph, but it may be a Pyrrhic
victory," says John McCarthy, an analyst at Forrester Research.


    At least on paper, the AT&T-NCR combination looks like a
good match. NCR, known for its electronic cash registers and
automated-teller machines, is a leading maker of midsize and
desktop computers. With revenues of $5.96 billion last year,
it is the fifth largest U.S. computer manufacturer (after IBM,
Digital Equipment, Unisys and Hewlett-Packard). What excites
AT&T, however, is not NCR's market share but the potential for
linking its own long-distance telephone system to NCR's
worldwide network of cash registers and ATMs. That would give
AT&T significant entree into the exploding business of
processing transactions for retailing and financial-services
firms. And it fits into AT&T's dream for the 21st century: to
wire every household for computerized shopping services.

    NCR also suits AT&T's long-term computer strategy. The two
companies' machines are largely compatible, using the same
operating software, called Unix, invented by AT&T in 1969. As
a result, they would be able to integrate their product lines
rather than face the dilemma of having to eliminate a system.
But more important for AT&T, the addition of NCR would enhance
the company's position in its ongoing battle with IBM to
establish Unix as the industry standard. Both companies want
to replace the technically outdated standard known as DOS.
IBM's entry, called OS/2, appears to be the stronger contender.
While Unix has been gaining market share, AT&T lacks the
credible machines to exploit the system's rising popularity.
Instead, other computer makers using Unix, including Sun
Microsystems and Digital Equipment, have cashed in.

    AT&T's abysmal showing in computers so far is somewhat
baffling. Its scientists at Bell Laboratories have been on the
leading edge of computing, playing a key role in developing
such technology as the microprocessor. But the company has
failed to convert high science into financial success. Its
first commercial computers, a series of midsize machines called
3Bs, flopped largely because, at up to $100,000, they were
overpriced. The company later formed joint ventures with
Convergent Technologies and Italy's Olivetti to make personal
computers under the AT&T brand. It also formed a partnership
with Sun and made a number of minor acquisitions, including
Paradyne, a modem maker, and Istel, which customizes computer
systems. But AT&T never managed to capture more than 3% of the
market, and losses have mounted to as much as $3 billion.
Rumors began to swirl about a possible merger as a quick fix.
Among the known targets: EDS, Sperry, Digital Equipment, Wang
and Data General.

    AT&T had approached NCR in 1988, but the response was the
same as today's: no, thanks. NCR only recently revamped its
product line, shifting from computers using its own software
system to machines that run Unix and DOS. "We didn't want
AT&T's computer mess dumped on us then, and we don't want it
now," says Charles Exley, NCR's chief executive. In discussions
last week with AT&T's chief executive, Robert Allen, Exley
warned of the history of failed computer marriages, such as
Sperry and Burroughs or IBM and Rolm: "The industry graveyard
is littered with mergers that have been outright calamities,
and there is no reason to believe this one will be any
different."

    Allen's task is to convince the NCR chief that this
acquisition would not become another tale from the crypt.
Although Exley has threatened to resign if "AT&T succeeds in
shooting its way into NCR," analysts think he can be persuaded
by a higher price. NCR has indicated a willingness to submit,
but at $125 a share (for a $8.5 billion total) rather than the
$90 offered by AT&T. Wall Street observers think  the two sides
will settle at around $105 a share. For its part, AT&T refuses
to back down. In a letter to Exley, Allen said, "We remain
dedicated to the completion of this transaction." But even if
AT&T does bag NCR, its problems could be just beginning.