AT&T; Buying Teradata to Tap Into Database Computer Arena : Technology: The $520-million stock swap will allow the firm to take on IBM.
In a major challenge to IBM in the $13-billion commercial database technology market, AT&T; said it will acquire El Segundo-based computer maker Teradata in a friendly stock-swap transaction valued at $520 million.
Teradata will become a unit of AT&T;’s NCR Corp. computer subsidiary.
Analysts said the combination of Teradata’s strength in advanced database technology and NCR’s market presence in high-tech cash registers, automated teller machines and computer terminals would help AT&T; compete with IBM in the market for commercial database computers and software, which is expected to grow to $40 billion within four years.
In over-the-counter trading Monday, Teradata shares jumped $5.125 to close at $28.875 on the news of AT&T;’s offer to exchange $30.25 of its common stock for each of Teradata’s shares.
AT&T;’s plan is also a sign of the shift away from mainframe computers to networks of smaller machines. Teradata, a 12-year-old firm with sales of $258 million last year, is considered a leader in applying “parallel processing” technology to very large commercial databases such as those used by retailers, banks and insurers. Parallel processing harnesses many information processors at once to work simultaneously on one problem and get it done faster.
In concrete terms, that means Teradata’s computers “can provide information on how many women are buying 36-B bras on Sundays at 5 p.m. (at all the stores in a chain),” said computer industry analyst Nili Young, a vice president at the Metagroup market research company.
The system is known as “decision support.” It can inform a chain’s managers immediately when sales of pink bras, for example, are slowing in San Francisco and Los Angeles, but picking up in Denver. The stores can then ship the goods to Denver and sell them at full price rather than mark them down locally, as they might do in the absence of up-to-date, chainwide information.
Teradata’s customers, including Kmart, American Airlines, Bank of America and insurer CNA, use vast amounts of information collected at cash registers, ticketing computers and other terminals (many of them made by NCR) to target increasingly narrow market segments.
Teradata has worked with NCR in developing database technology since March, 1990, when NCR bought a 9.4% equity stake in the company. About 110 engineers from each company are working on a parallel processing project in San Diego.
AT&T; was said to be interested in Teradata’s technology even before it launched its hostile takeover bid for NCR last December, which ended in AT&T;’s purchase in May of the Dayton, Ohio-based computer maker for $7.4 billion.
Teradata’s technology is key to making NCR’s and AT&T;’s market strategy succeed, said Jim Reynolds, an analyst at Wedbush Morgan Securities. “Without Teradata’s high-end technology, there was no compelling reason for people to buy NCR products. AT&T; spent over $7 billion on NCR in order to get into computers, and then decided they’d better spend another $500 million to get what they really need,” he said.
AT&T; also happens to be Teradata’s largest customer, using its database technology to track and analyze bills and financial accounts.
The NCR and Teradata systems work by building networks based on an Intel chip and the UNIX operating system. They are part of a trend toward decentralizing computers, taking more work away from mainframes and putting them into personal computers and non-mainframe computers that link them together.
Teradata officials said they expected the company’s headquarters would remain in El Segundo. And Teradata Chairman and Chief Executive Kenneth Simonds said, “I’m pleased to see that NCR’s approach in initiating the integration planning activities is aimed at preserving the values that Teradata employees have created over the last 12 years.”
But it is too early to know how the proposed merger, which must be approved by the boards of AT&T; and Teradata, will affect Teradata’s 1,600 employees, about half of whom are in the Los Angeles area, said David Clements, a spokesman for the company.
In 1990, hard-hit by the slowing economy and poor sales overseas, the company reduced its work force by 12% and moved most of its manufacturing from Los Angeles to Dublin, Ireland, where costs are lower.
