Teradata – A Division From NCR
Spin-offs usually result in two discrete companies, but will that be the case with the division of Teradata and NCR?
On January 8, NCR announced its intention to spin-off its Teradata division to holders of NCR common stock. The net result will be two independent, separately traded public companies. NCR, founded in 1884 as the National Cash Register Company, was acquired by AT&T in 1991; later that year the NCR division acquired Teradata Corporation, already an established database machine vendor. In 1997, AT&T spun-off NCR (including Teradata) as an independent public company. What goes around, most certainly does come around.
At a high level, the Teradata spin-off is being positioned by NCR as allowing NCR to focus on its self-service and ATM business, while Teradata can focus on its database and data warehousing business. While there have been reports positioning this as a software spin-off, the powerful MPP version of the Teradata database runs in conjunction with NCR hardware servers, meaning the resulting Teradata company will likely inherit the hardware servers as well. While Teradata has not specifically stated this, the breakdown of Teradata data warehousing revenue versus "New-NCR" revenue include the hardware servers powering the Teradata data warehouse in the Teradata number, strongly suggesting that the NCR hardware servers will be part of the Teradata spin-off.
Although NCR may be in the ATM business, a quick analysis of its financial statements indicates that Teradata may be the real "cash machine" fueling the company. For example, the Teradata division provided approximately 25 percent of NCR’s 2005 and first nine month 2006 revenues, but generated (excluding pension expenses) over 55 percent of its 2005 and 60 percent of its first nine month 2006 operating income. Consequently, the Teradata spin-off should have strong financial viability as an independent company.
From a data warehousing perspective, Teradata should emerge an even stronger company, perhaps at the expense of the remaining NCR business units, which will no longer have access to the operating income generated by Teradata. Possibly in preparation for this, three days after the announcement of the planned Teradata spin-off, NCR announced plans to eliminate approximately 1,200 jobs and outsource production of its ATMs in the Americas. One might ask why NCR management would want to spin-off Teradata, but since NCR stockholders will receive all of the stock of the Teradata company, the same financial results are merely being divided between two buckets.
While its new independent status should provide Teradata with many benefits, including the ability to plan and execute without the need for an additional layer of NCR management approval, it does not remove the competitive pressure Teradata faces from both traditional database vendors and data warehouse appliance vendors. Teradata is still considered the product-to-beat for high-end data warehouses, but it’s also considered by many as an expensive solution. It is possible that once Teradata is truly independent of NCR, it may decide to reduce its data warehousing dependence on NCR hardware. However, to do so might also reduce its profit margins.
It is conceivable that Teradata could even become an acquisition target by a hardware vendor willing to engineer the necessary port of the MPP version of Teradata to its own platform. Rumors abound about the interest of companies including HP, now aggressively pursuing the data warehouse market, being interested in Teradata. As an independent company, Teradata is an easier acquisition than before.
Teradata is extremely partner-friendly (as long as the Teradata database serves as the data repository) and will likely retain the strong partnerships it has with numerous business intelligence and data integration vendors. For example, while Teradata offers its own data mining technology, Teradata Warehousing Miner, it positions that as being complementary to, rather than competing with, products from data mining partners including SAS, SPSS, and KXEN. Its status as an independent entity should not diminish these partnerships and may, in fact, enhance them.
And finally, the press and analyst communities should benefit as well. Once the spin-off is completed, we will no longer be badgered by the NCR branding police, who miss no beats in reminding us that any mention of Teradata be followed by the clause: "a division of NCR."
Michael A. Schiff is a principal consultant for MAS Strategies.