Tech Industry

Unisys or NCR likely to be bought next

EMC's surprise acquisition of Data General leaves very few of the smaller "big-iron" server companies left standing. And expectation is high that at least one is ripe for takeover.

EMC's surprise acquisition of Data General leaves very few of the smaller big-iron server companies left standing. And expectations are high that at least one of the players is a potential take-over target.

NCR and Unisys stand alone as once great server companies beaten down--still independent, but progressing along the come-back trail. Either company is a likely acquisition candidate, analysts say.

In this time of market transition, which firm may go next is anyone's guess.

Big iron manufacturers fell out of favor in the late 1980s and 1990s as large customers focused technology more on PC workgroups and less on large servers and mainframes. This followed a management trend of empowering smaller units within the larger organization, according to the Meta Group.

But the pendulum has swung back to more centralized technology management and big-iron servers, making systems from manufacturers like Data General more attractive to potential customers and larger competitors.

The Internet has also fostered a great demand for powerful servers and attached storage, and a boom in services to make the technology work.

As larger manufacturers scramble to fill in technology gaps, they look to smaller players strong in niche technologies and market segments.

In less than a month, industry shakers swooped down and plucked up companies with specialized expertise, with IBM buying Sequent Computer and today's announcement between EMC and Data General.

NCR and Unisys are attractive takeover targets for different reasons. Both are engineering comebacks that would attract different suitors.

"I think NCR would be a good match for a larger systems provider. That could be any of the big six or seven," said James Gruener, analyst with the Aberdeen Group.

NCR's strength is a wide-range of core competencies, from setting up data warehouses to servicing the financial services market, that make it highly attractive, said Gruener.

But NCR's server business has fallen on hard times, losing 41 percent revenue share between the first quarter of 1998 and 1999, according to International Data Corporation.

"NCR's server business is racked right now. They've had some real problems with demand," said IDC analyst Jim Williamson.

Some analysts said this is not a problem because NCR is shifting more from servers to services.

Unisys' position is much stronger. Under the tenure of CEO Larry Weinbach, the company resolved about $1.2 billion in debt, unloaded unproductive units, and increased its services business.

Unisys posted earnings of 38 cents a share on income of $119.7 million during the second quarter, up from 24 cents a share a year earlier. NCR also showed improvement, with earnings of 45 cents a share, up from 18 cents a year earlier.

Unisys' server business isn't exactly going gangbusters either. The company had virtually no revenue growth between the first quarter of 1998 and 1999, according to IDC. This is in part due to product transitions as Unisys waits for the release of Windows 2000 and Merced to launch new server lines.

With more than 70 percent of its revenue coming from services, Unisys has some breathing room, said analysts.

The company most associated with Unisys is Dell. Unisys services could give Dell more clout with large customers.

"It would be something, and it would definitely move Dell upstream," speculated Williamson. "I don't expect it to happen. Dell seems committed to what they're doing and doing it better quarter after quarter."

NCR's jack-of-all-trades expertise but weakened server position makes it a better buy in some respects, said several analysts. Unisys is growing so fast it is almost too successful to consider, suggested Gruener. The company's location near Philadelphia is also a deterrent to suitors located in high-tech areas, such as Silicon Valley or Massachusetts' Route 128 corridors.

In a recent interview with CNET News.com, Weinbach left open the possibility of a merger. "I've said repeatedly, the company's goal is to build the company and try to acquire, not be acquired. But at the same, I've very realistic. I have a fiduciary responsibility to our shareholders, and if someone came after us we would have to deal with it. We're not looking for it."