AT&T;’s Allen Bets Legacy on Computer Deal
If American Telephone & Telegraph Chairman Robert E. Allen were prone to folding under pressure, you might have seen it at AT&T;’s annual Pro-Am golf tournament at Pebble Beach earlier this year. But with network TV cameras rolling, Allen, an 8-handicap golfer, sunk a 15-foot birdie putt without a miscue.
Another high-profile, high-stakes performance by Allen is coming. This time, however, billions of dollars as well as his own corporate legacy at AT&T; are on the line as Allen attempts to deliver on the telephone company’s longstanding promise to become a big-time player in the computer business.
Although the first step--AT&T;’s hard-won agreement announced last week to acquire NCR Corp. for $7.4 billion--is behind him, success is hardly assured. As Allen readily admits, fitting the nation’s fifth-largest computer maker into the AT&T; bureaucracy and realizing the huge potential promise of blending computers with telecommunications “is no slam-dunk.”
In fact, in his first interview since the merger’s announcement eight days ago, Allen conceded that the NCR acquisition is well-calculated and well-analyzed, but a gamble nevertheless to transform AT&T; from a regulated monopoly utility of the 20th Century into a technology leader of the 21st Century.
Clearly, Allen feels up to this high-risk, high-reward challenge.
“This is not a safe world. And we’re not looking for safety,” said Allen, a lean, lanky 56-year-old career AT&T; executive whose intense brown eyes seem to bore through his listeners. “Taking the easy, less-risky way is not satisfactory because it won’t make us successful.”
With the NCR acquisition, Allen is putting on the line the high marks he has already earned for remaking the once-sluggish phone giant into a faster-moving, more aggressive global competitor.
Since Allen took over as AT&T; chairman after the sudden death of James E. Olson in 1988, Ma Bell’s international sales, freed from the shackles of regulation in 1984, have continually risen. Her share of the domestic long-distance market, once seemingly on a free fall under competition from MCI and US Sprint, is starting to pick up again. And the 18-month-old AT&T; Universal credit-cum-calling card is such a smash hit that orders were held up for nearly a month last year when the company ran out of plastic on which to print them.
Even AT&T;’s move on NCR--a hostile takeover ploy at the outset--had all the marks of a newly aggressive telephone company.
“He’s put his personal mark on the company already,” said Frank Governalli, a telecommunications analyst at First Boston. “There have been major changes on his watch.”
If the NCR acquisition is a success, Allen is assured a permanent and bold legacy at AT&T.; But if it fails, all of Allen’s other achievements might be overshadowed.
“Allen is taking a huge risk,” said William Davidson, a telecommunications consultant and professor of business management at USC. “This is his strategic bet, and it could be the deciding factor in his legacy.”
And although Allen isn’t betting the company on the NCR acquisition--AT&T; had revenues of $37 billion and profits of $2.7 billion last year, making it big enough to survive a failed merger--its outcome will determine what kind of company AT&T; will be as it enters the 21st Century.
Still, most analysts say Allen faces a huge burden of proof to justify the NCR acquisition.
After all, virtually every merger between technology companies in recent years has flopped, including IBM’s purchase of Rolm, which was designed to produce the same marriage of computers (IBM’s) and telecommunications (Rolm’s) as AT&T; is pursuing with NCR. IBM has since unloaded Rolm into a joint venture with Seimens, the German technology giant, and written off its losses.
Allen acknowledges that “it’s going to be tough” not to repeat history. But he says the NCR deal offers AT&T; unique opportunities to increase its core telecommunications business as well as enter the emerging market for so-called networked cooperative computing, a fancy term for computers linked by telephone lines.
Allen argues that corporations, led by banking and retailing, are increasingly relying on permanently connected networks of computers to transact business instantaneously.
These networks require huge quantities of long-distance telephone service, and AT&T;, which still receives nearly three-quarters of its revenues from long-distance calling, is anxious to expand the market’s growth.
NCR, which started out as a cash register maker more than 100 years ago, is considered a leader in transaction computing, particularly in the financial services and retailing markets. And with operations in 120 countries around the globe, Allen says NCR gives AT&T; the international presence it requires to boost its foreign revenue to about 50% of its total business within the next 15 years.
“It’s a natural marriage between our communication services and network skills and their transaction service operations all over the world,” Allen said.
Allen said the NCR purchase is not AT&T;’s last technology acquisition, hinting broadly that he will be looking for a software company or two in the near future to give the computer unit added strength.
“We’re not finished by a long shot,” he said. “All these moves are just part of a mosaic we are making. In time our actions will position us as a technology leader.”
