NCR Voyix Corp (VYX) 2002 Q1 法說會逐字稿

Good morning and welcome to the NCR investor relations conference call. All participants will be able to listen only until the question and answer session. Today's conference is being recorded at the request of NCR. If anyone has any objections, you may disconnect at this time. I would now like to introduce your host for today's call, Mr. Gregg Swearingen, Vice President of Investor Relations. Sir, you may begin.

Thank you, Michelle. Good morning everyone, and thank you for joining us as we discuss NCRs operating and financial results for the first 1Q 2002. Lars Nyberg, our Chairman & CEO, will lead today's discussion of NCRs operating performance, with Earl Shanks, our Senior Vice President & CFO, providing commentary regarding our financial performance. A Q and A session will follow these prepared remarks. A replay of today's conference call is available on NCRs website. I would like to remind you that our remarks and responses may include forward-looking statements. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to vary spherically. These risk factors are described in NCRs SEC filings as well as in our annual report stockholders. Before I turn the call over to Lars, I would like to mention that we would be holding an investors meeting in Atlanta on May 21, to discuss our retail and financial

. This event would not include any information or overview of each of the RFGs businesses and we will adjust topics such as market trends, new products, services, operational excellence, and strategic focus.

To register or for more information, please call me or Carol

at 937-445-5905.

Lars.

Thank you, and good morning. Thank you for joining us as we provide our commentary on 1Q results. In the 1Q 2002, NCR met expectations for revenue, and operating income, and exceeded its expectations for earnings per share by $0.01. Our employees worked to accomplish this despite a very difficult capital-spending environment. The

for the quarter included Retail Store Automation, Retail Store Automation, generated 3 percent revenue growth including maintenance revenue against a strong prior year comparison. This performance again demonstrates the demand for Data Warehousing and Teradata's technological advantage in this phase. More importantly, Teradata's Data Warehousing achieved $23 million of operating income in second consecutive quarter of meaningful profit.

This business is well on its way to becoming NCRs largest, fastest growing and most

profitable business. Financial Self Service operating income declined as a result of lower

service revenue, less benefit from pension, and lower margins due to mix and currency. Retail Store Automation experienced a very challenging quarter, consequently the operating declined significantly due to lower overall volume and revenues from new products.

Customer Services

Maintenance revenue grew in both in data warehousing and Retail Store Automation

solution. We continue to benefit from expense management and our balance sheet and cash flow focuses resulted in significant improvements compared to last year's 1Q.

I would now like to briefly discuss the performances of each of our businesses. Our Teradata's Data Warehouse business had a great quarter, achieving revenue at the high end of our guidance range and operating income substantially better than our expectations. An excellent performance in this environment of careful, capital spending. Teradata saw a small rebound in the telecommunications segment in the 1Q, confirmed by

at new

in Europe and Asia Pacific. More importantly, we were also able to advance our penetrational new industries such as Manufacturing and Banking. These again helped or set the joined effects of economic slow down which continues to impact some key markets, such as transportation and retail. Historically, strong segments for our data warehousing business.

In the battle to win new customers, we are not aware of a single competitive loss. Although of number of new customer wins was somewhat below our average run rate. Our new customer pipeline has never been this active. We continue to add quality name such as

, and

,

, and American Transact

.

In the 1Q, we captured a portion of the remaining 3Q upgrade deferrals, with a

expected in the 2Q. We also secured 75% of 4Q deferrals. Let me repeat something I have said before. We do not lose customers as demonstrated by ourselves.

Sometimes, we have seen upgrade deferred due to capital spending constraints, but we do not lose customers to our competitors. Data Warehousing exceeded second consecutive quarter of meaningful profit, thanks to the improvement in its financial model, and we expect Metadata to be profitable in each quarter, this year. However, I would like to note that there are several factors that affect the Data Warehousing margins. For example,

the mix of software content, upgrade versus new customers, storage etc. In 1Q, all of these factors worked in our favor. Even though we were

every quarter, this will not always happen.

Our financial self-service business released flat revenue versus the 1Q 2001. In terms of constant currency, revenues increased 2 percent, compared to prior year. The financial markets are now feeling the effects of the global economic downturn, in particular, we did not see the robust growth in Asia-Pacific region like we have seen in the past quarter, but remain confident of delivering significant growth in Asia-Pacific region for the year.

Financial Self Service operating was down quarter over quarter, due to lower service revenue, less benefit from pension, year over year impact of currency and mix. During the quarter, we had a higher percentage of revenue from outsourcing, which has a lower margin.

Financial Self Service operating margins will return to mid teen levels, as we grow service revenue and benefit from the sales of higher margin, full function ATMs

As expected our Retail Store Automation saw significant revenue deterioration, as revenue fell 29 percent against an extremely tough prior year comparison. Our result was constrained by a difficult retail marketplace still suffering the effects of a slow capital spending.

Additionally, the 1Q 2001 included significant revenue from K-Mart self-checkout rollout making the comparison even more challenging. We also had substantially less revenue from the US Postal Service, as compared to last year's 1Q.

In late January, we announced a lease of our new self-checkout solution, Fast Lane, that incorporates the improved features and greater flexibility within a smaller

.

In March, we unveiled a new generation, low-cost, point-of-sale product including the first terminal available of 1 GHz Intel Pentium III processor and featuring the ability to leverage web-based and multimedia applications. The reactions to these new products have been very good and we expect them to generate significant revenue as well as contribute to the operating income in the 2H of this year. Additionally, activity around our shelf label product, branded as RealPrice, is progressively increasing. We are currently working with key customers in nine countries. We have active or committed pilot with 14 customers, seven of them what we consider market maker accounts. We expect at least one major customer commitment this year.

We have already announced rollouts with Behamptonn get

store supermarket and whole

. Retail store automation profitability declined in the quarter, primarily as a result of lower revenue and less new product volume. Significantly lower revenues obviously have an adverse effect on leveraging fixed cost. We expect to drive substantially substantially higher revenue in 2Q quarter as well as in the coming quarters. This higher revenues combined with our success in lowering retail expense structure will significantly improve profitability. For the balance of the year, in aggregate, Retail Store Automation will be break even.

Turning to our Customer Service Maintenance business, revenue was down 6 percent compared to 1Q 2001, primarily due to the divestiture of our item-processing outsourcing business as well as decline related to our in the exited businesses. Once again, we achieve meaningful maintainance growth in our data warehousing. We also grew maintenance revenues for Retail Store Automation. The first time we have grown in this area of maintenance business is the 3Q 2000.

Our data warehousing maintenance revenue has continued to grow as we continue to add new customers. Profitability improvements are due to volume increase, stream lining our cost structure, and higher percentage of remote resolution. Within that reach of our financial group we experienced an overall decline in maintenance revenue with corresponding profitability pressure. We are actively driving maintenance growth with in these solutions to increasing our capture rate of NCR-ATM and from the cell

and winning incremental maintenance business from other companies ATM and phone cell

as well as in high availability services. To increase the effect of our sales force, we have integrated our maintenance sales force into our solutions sales force around the world. We have seen some initial improvements from these recent changes, but I expect more. Additionally, we are reducing maintenance cost as a result of many actions including executing customer profitability initiatives, which utilizes a Six Sigma approach to attack, cost drivers at the account level. Primarily in the Americas and the

. Expanding our utilization of a clear work force, and lowering the infrastructure cost in our global operations.

In the segment Other, I would like to reiterating what is included in this segment. Other as reported in solutions include revenues from exited businesses and high availability products. Other as supported in services include maintenance for exited businesses and more importantly our high availability maintenance for third party products such as

networking component and

. In the 1Q 2002, as in previous quarters, from exited decreased rapid pace. We expect only minimal price revenues from exited businesses in 2002. However, we will still report negative year over year comparison against 2001. We expected growth in high availability maintenance revenue to offset the decline in exited businesses revenues. However high availability maintenance revenue continues to be impacted as it had been for the past three quarters by the contingent capital spending slow down related to the telecommunications, networking and hardware companies. As a result of the revenue decline in other, in both exited businesses and high availability services, we had under-absorbed absorbed fixed costs. We had discussed this with you before and have taken action to reduce our costs. We have progress and expect more benefit in the coming quarters.

Before moving on to the details on our financial results. I would like to spend a few minutes on a couple of our smaller businesses in the retail and financial group, Systemedia and

. To give guidance every quarter on these solutions, particularly do

discuss the results and I would like to share with you that performance in the 1Q 2002. Systemedia revenue was basically flat quarter over quarter, consistent with guidance. However operating income improved about $2 million or 2 percentage of revenue from prior year quarter. This increase was driven by both gross margin improvement and expense reductions.

For Systemedia business, we are

working to change the product mix, moving away from the traditional commoditized products and adding products with over higher margins and opportunity of revenue growth, such as retail office products.

Additionally, Systemedia's Teleware [phonetic] program has allowed this business to substantially reduce the selling and marketing expense while providing improved customer service.

Our Payment and Imaging saw revenue decline 5 percent in this quarter due to the sale of

our item-processing outsourcing business. As adjusting for this divestiture, the core business grew 8 percent, quarter over quarter. We had a better first quarter than we anticipated due to the timing of some larger bank imaging rollouts. Operating margin was up almost 2 percentage as compared to the 1Q 2001. This business is shifting from traditional item processing to the image-processing. Our focus in the traditional item-processing space is on product cost leadership, and operational efficiency to improve profitability. In imaging, we see growth in providing end-to-end solutions to the market including check-image capture, archive, and

.

I would now like to turn the call over to Earl to discuss our financial result in more details.

Thank you, Lars.

Good morning, everyone.

I would like to direct your attention to the second schedule included in our earnings release.

We did not have any special items in the 1Q 2002, however, in order to discuss the company's 1Q results on a comparable basis, this schedule identifies the year over year impact of goodwill amortization expense as well as the special items we incurred in the 1Q 2001. In total goodwill amortization in the prior year period was $18 million dollars. A comparison of 2001 results by solution with and without goodwill is available on our website. As a reminder, special items in 1Q 2001 included a substantial benefit from release of tax reserve, a charge related to

, the

an accounting change and acquisition integration charges. In the remainder of my comments, I will compare our performance to last year's 1Q results, excluding special items and goodwill amortization. We were pleased with our overall performance, especially relative to the marketplace. Revenue down 9 percent, was in the middle of our guidance range. In fact, revenues from most of our businesses were as expected. In constant currency terms, revenue was down 7 percent. Gross margin were down 1.8 percentage points due to the overall revenue decline.

The overall Retail Store Automation revenue as well as lower gross margin in Financial Self Service resulted in lower overall product gross margin. Services margin were down due to result

. This was the impact of lower revenue

combined with the fixed cost structure. Overall we are pleased with our

management performances. Expenses

were down as a result of accumulative effect of 2001 action and our on going focus on

operational efficiency. We continue to see expense reduction for data warehousing and retail

store automation.

Looking now at the impact of pension. Included in 1Q results, we had a $19 million benefit

from pension, down $14 million dollars from the $33 million of pension benefit in 1Q 2001.

This decline had an impact on all solutions, however as we mentioned in the earnings release,

the impact was more evident in our Financial Self Services business. R&D spending

decreased as a result of actions taken throughout 2001, including the continued movement

for utilization of industry standard component. In addition, we are no longer spending

development

the efforts that have resulted from our acquisition series

. However we continue to spend appropriately on strategic initiatives and have not

our ability to bring new technologies to the marketplace. For example,

we continue to spend more than 10 percent of Teradata Data Warehousing revenue on

R&D. Operating income of $9 million dollars was in line our expectations. Obviously,

bolstered by Teradata Data Warehousing improvements, the down

substantially overall due to lower volume in our Retail Store Automation business, lower

margins in Financial Self Service, and revenue shortfalls in high ability services.

Turning to other expense, we have $3 million dollars in the 1Q, slightly better than expected.

For the full-year we continue to expect approximately $20 million of other expense. Our

effective tax rate for the quarter was 30 percent.

Weighted average number of fully diluted shares outstanding at end of the quarter increased

to a 100.6 million versus 99.3 million for the year ago quarter.

Moving now to the cash flow statement, I was very pleased with our success in generating

cash flow improvement in the quarter driven by good inventory management and tight capital

expenditure control. We are aggressively managing each line in the cash flow statement and

are delivering improved asset management performance. As a result, we generated positive

flow for the quarter. Our cash increased by more than $40 million dollars

and we reduced our debt level by more than $30 million dollars. As we stated in our earnings

release, we will take a charge in 2Q 2002 for goodwill impairment in accordance with FAS

142 on Goodwill and Other Intangible Assets

to require goodwill and

to finalize the analysis of the goodwill on our books, relating to acquisitions

made prior to June 30, 2001. Although we have not yet completed this analysis, we expect

to record an impairment loss of between $300 to 350 million dollars as accumulative

effect of the accounting change in the 2Q. Obviously, this will not have any effect

on cash fund.

Now, I would like to update our full year guidance and provide our initial 2Q guidance. We

see some stability in the market and

a big economic improvement. The

companies remained cautious, as capital spending has not returned to normalized levels.

Given our concern about capital spending and continued weaknesses in the retail industry,

we expect full year revenue for NCR to be down 0 to 5 percent. If capital spending

improves in 2H of the year, we can achieve our prior operating margins guidance of $350

million dollars. However, given the unpredictability of the capital spending environment, we

recognize we have

risks at $300 million dollars of operating income. This

capital spending does not improve in the second half of the year. This would result in the

earnings per diluted share of range of approximately $2 and $2.30. Our initial guidance

through the 2Q is as follows;

We expect total NCRs revenue to be down approximately 10 percent. By solution, Teradata

Data Warehousing revenue could be down year

to 10 percent in the 2Q

2001. Once again, we anticipate Teradata will be profitable for the 2Q. Financial Self

Service, Customer Services, and Systemedia revenues will be relatively flat, while Retail

store automation will be down 20 to 25 percent from prior year for the substantial sequential

improvement. Payment Imaging and Other will both be down about 30 percent. The 2Q

operating income and EPS is expected to be in the range of $50 to 65 million dollars and

$0.30 to $0.40 respectively. Although we have provided you with the down

risk, I

reinforced you that we are committed to take action needed to achieve

our original $350 million dollars operating income target. Of course, the next milestone we

must meet is delivering 2Q as described.

During this quarter, we are also working a very active pipeline to secure orders that will

our revenue growth in the second half of the year. I will now turn the call

back to Lars.

Thank you, Earl.

Let me summarize for the 1Q 2002, NCR met expectations for revenue, and operating income, and exceeded the expectations for earnings per share despite a very difficult capital spending environment. We have executed strong expense management and will continue to do so in the coming quarters. Additionally, we delivered positive cash flow, a significant year over year improvement driven by good inventory management and tight capital expenditure control. Our Teradata Data Warehousing business is taking market share. As capital spending levels rebound, revenue will grow leveraging Teradata's strong financial model. This business is well on its way to become NCRs largest and fastest growing, and most profitable business. In our Financial Self Service solution, revenue and

margins will return to more normalized levels, driven by growth in maintenance and sales full function ATM. Additionally, we remain confident. We will see significant growth in Asia-Pacific region for the year. Our primary objective at our Retail Store Automation is to drive revenue in order to leverage our reduced expense structure. We have released new lower cost traditional

product and a new version of our self check-out solution. We are anticipating continued activity in the self-check out segment as well as market acceptance

shelf-label solution, later this year.

In customer service maintenance, we are pleased with our revenue growth in Data Warehousing and Retail Store Automation and we are committed to driving growth in Financial Self Service solution. We will continue to see the benefit of

cost reduction actions as well as the impact of 2001 initiatives. We do have issues in our

high

Service business, but we are taking appropriate measures to address both revenue and profitability. We are making progress. We still have a lot of work to do, and off course a better capital-spending environment is an important element in achieving our financial targets.

Operator, we are now ready to take questions.

At this time if would like to ask a question, you may do so by pressing star, then one on your touch tone phone. You will be announced prior to asking a question. To withdraw your question you may press star and then two. Once again, to ask a question, please press star one now.

Our first question will come from Steve

with Merrill Lynch

Thank you. Good morning, Steve.

I wonder if you could give us roughly, what do you think the R&D figure for the full year is going to be?

Also, you do have a lot of confidence in a rebound in the financial and retail side of things?

Where does the confidence emminate from that, for example, Asia Pacific is going to pick up?

Do you have some backlog or contracts that is giving you that confidence?

And then the third question on the data warehousing business, you are pursuing this view of an enterprise data warehouse, which I think makes a lot of sense. But in this environment it seems like corporations are trying to buy smaller things. What do you see know there in the market place in terms of more on data mark versus more integrated view?

Okay, Steve. This is Lars.

I will start with self-service. First of all, if you look at 2001, that was a very strong year for our self-service, we improved our operating margin by two full points. In particular, the 1Q was a very strong quarter so it's a very tough comparison for us this quarter. We go back to the year, before that the result of the 1Q 2000 are very much more aligned with the result of the 1Q of this year and 2000 ends up with mid-teens operating income. Yes, off course the confidence in the Asia Pacific is based on backlog, the final activity, etc. The question on data warehousing, you would may be think that people would buy smaller things but the fact is that we have an extremely attractive proposition to companies having data mark, typically, they have 10 or 15 or 20 data marks. We can basically at no cost eliminate those data marks and put in the price data warehouse. So the cost of maintaining and operating 15 data mark is actually higher then putting in one in the price data warehouse. Not only will our customers have lower cost, they will have a much better system that can give one version of the truth, and provide the kind of information to all parts of the company. So it is a very attractive

proposition, especially in a situation were capital expenditure is tight. Steve, last year we were for the company in total, a little over 5 percent of revenue in terms of R&D. We have tightened up our capital spending and done better over the past year. So, I am focusing it. So it will be modestly below the 5 percent issue as our expectation. We have absolutely tightened it up. That is what we expect.

Our next question comes from Rebecca

with Morgan Stanley

Good morning. How are you?

Fine, Rebecca. How are you?

I am well, thank you.

I just had a couple of quick questions. First,

that relates to, thinking about capital spending all through this year. Any commentary authority to provide in terms of how you are thinking about CAPEX for the full year?

Sure. We have said for a couple of quarters at least, that we are targeting for the full year, but we want to be no more than 90 percent of depreciation. Obviously, in this quarter we come in substantially below that and we are really doing two things at once in capital spending. We are putting in overall target what we want to manage to, but we are also very closely looking at briefing managerial level and capital spending level throughout the company to make sure we have been doing effective. This quarter we were particularly affected but would be

that. I do not expect this quarter to be the norm. I expect to have to turn back towards the 90 percent for the full year.

Ah, Yes. I guess, as we look at the 1Q, shall we maintain that 90 percent or no more than 90 percent? I have actually come down from back in 1Q result?

It might in fact be down a little bit from that, but management points on a full year basis that we internally targeted it is 90 percent, but obviously we are continuing to be very tight about how we manage it, which hopefully will drive

.

Great. Then in terms of your commentary of seeing some stability on the marketplace. Any clarity or data points, or just perspective in terms of what specifically that was beyond macro oriented evidence would be helpful in terms of the whole thing?

Rebecca. This is a

question for us and for most of the companies. The way I looked up on it, I see the economy turning. However, having said that, we still see careful capital expenditure in the customer base, just as we are talking about our own capital expenditure. I still believe that there will be a rebound in the second half. The question is how strong will it be. In a way, I think this quarter is going to be very telling on how quickly the rebound will come. We are absolutely seeing signs of stability. Particularly, it is interesting, as historic

, I think we have an higher activity today than we had in many quarters, but that has not been yet translated into firm orders. And again I think this quarter is going to be pretty important for us to judge the rebound 2H. Because of this lack of visibility, if you want to call it that, that is why we have said, we need to realize that we have a down side risk in our operating income for the full year if the rebound does not happen. So, that is all the color that I can give to you.

Lastly, I want to ask as a follow up and that is in terms of Teradata next for the quarter, can you break out for us a little bit more specifically hardware, software and services, and how are compared to your expectation going for the quarter?

Yeah. We typically have 40 percent hardware, 30 percent software and 30 percent professional services. We had a favorable mix, not dramatically favorable, but favorable. We had somewhat lower number of new customers wins than the average run rate. So we had more of upgrade that we normally have. Our software content was favorable. So I would not

say it was dramatically different but the sum of all things going the right way clearly had an impact on the operating income.

Perfect. Thanks so much,

Our next question comes from Jim Brown with JP Morgan

Hi, could you talk about the competitive environment in the

business? Are you losing market share, is there pricing pressure? and also if some stiff there is a lot of less visibility here in the retail store automation business. Could you comment on that as well?

Sure Jim. This is

. First of all I do not think there is less visibility. I think it is the same issues are quickly ruled by the CAPEX return or rebound. That's the issue. That's the issue for both retail as well as for sales

, the competitive landscape. I don't think the low

have changed. There is always pricing pressure. We have been able to manage that in the last couple of years very well, especially during the last year. I expect that we will able to continue to do that in the coming quarters. I want to reiterate that the fact that I think 2001 was an extremely good year and particularly the 1Q in 2001 was a good year.This result is more aligned with the 1Q of 2000 and 2000 ended up with an operating income of 13 percent and that is basically what we are sort of expecting in raw numbers for this year. We are very confident about the Asia-Pacific. We will have growth in Asia-Pacific, specifically, in general China market continues to be very attractive with a lot of customer activity, senior executives have been out there in this quarter actually and I feel very confident about. I do not think we are losing market share, certainly not in Asia-Pacific. I do not believe we are losing market share, but I need to see some of the numbers before I comment on it Jim.

Okay thanks.

Thank you and good morning. I was just digging into financial self service a little bit deeper. I think on a seasonable basis we typically seen an operating margin improvement of 500 to 800 basis points sequentially in that segment. As I listened to some of your earlier comments it sounds that a real improvement in operating margins is going to come from increase services activity. Can you help us understand the pace of which you think you can get operating margins up in the business?

I think increase service activity will help, but I think I also mentioned several times it is a mix issue of products as we start. as we get more volume and what we call the full function ATM margins you will see the improvement. Clearly, the fact that we had decline in service revenues in the 1Q is a bad thing and we are absolutely committed to get back on the the growth rate to equal the maintenance business or the ATMs, but don't think that will only improve the result as before it is really also a mix of product, mix of regions, and mix of countries. Okay thank you.

Thank you.

And then digging into data warehousing a little bit deeper as well we see a nice increase in absolute level of operating profits despite the sequential decline in revenue and we also see a decrease fairly sharply in R&D sequentially as would expect seasonably, but can you help us understand as we look at operating profitability in that segment. The percent of improved that is coming from mix versus a rationalizing R&D versus other self-help.

Okay. First of all you had basically flat revenue. Was actually up 3% when you include the service. There is no doubt in my mind for a second, that means we gained market share again and as I said I am aware of even one competitive loss in the quarter. I am convinced this is going to be our largest, our fastest growing and our most

business as the capital expenditure rebound. Clearly, what we have done and what

had done in this business during last year is to lower the breakeven point. We talked about that for a couple of quarters. For the prior two to three years we were totally focused on revenue growth because the financial model is so attractive that 50 percent on the dollar falls the bottom line, when the market was not able to provide that growth. We focused on reducing our even breakeven points. We benefited from that in 4Q and we clearly benefited from that in the 1Q. We will clearly benefit from that in the coming 3Q. On top of that in the 1Q we had a good mix, as I have been saying before the software content, the mix on the storage. They were all very favorable this quarter and I want to give you a bit of caution that you can not assume that we are going to have those full benefits, all the same way on all aspects every quarter. You work hard on them. But we clearly think that we can't have that may be that kind of performance every quarter. Let me be very clear. Reducing the expense structure, including the R&D, in my opinion, in no way, hamper our ability to continue to have the technology leadership that the

group has said that we have. We have a three-year lead over competition. We spend more than 10 percent of revenues in this business on R&D. There is no doubt in my mind that both on the database as well as the on the application side. We have and will continue to have an enormous advantage in terms of all technology.

That is quite useful, but can you give us some indication as to what percent of the operating improvement is coming from the various factors?

We do not disclose that, but I clearly I would think our cost deduction and our gross margin improvements will have a significant impact on the improvement whether it is 50-50, or 40-60, or 60-40, I don't know. It is so important. If business starts growing from with the lower breakeven points, that is why when I say this is going to be our most profitable business when it starts growing and I believe it will start growing in the second half depended on the rebound on the CAPEX. We will have a rebound on the CAFEX. We are the absolute, most successful, best supplier in this space and we will grow this business and therefore with the lower breakeven points this will become our most profitable business, which we have to be 15 percent plus of the income in the midterm over couple of years and it has the potential to become that profitable.

Now next question comes from Matt J. Summerville of McDonald Investments

Hi good morning guys.

Hai Matt. Got a few questions for you.

First with the ATM business we have talked about this a little bit, but I am little disturbed that on the maintenance side you lost $9 million worth of revenue. If I look at that business and how it would have involved over the last 12 months, on a quarterly basis, revenues were relatively flat. Did you exit some maintenance business, lose some maintenance business, is pricing pressure more prevalent than it has been over the past year? I need more color there?

Okay Matt. We have grown this business every quarter and we had to decline this quarter. I do not think there is an exceptional pricing pressure. There is a hard

out there for the maintenance business and there is no discussion about that and we were not as successful as we have been in the pervious quarter. I may point that we have moved the sales force for the maintenance business and combined that with the sales force of the solution. We think that very important because basically our customers are talking about the ATM business. Now it also holds true for our stores in maintenance business. Our customers are buying the complete solution that means both the hardware and the software as well as the maintenance business. We have been organized differently in the past years with two separate sales force and we have now moved the

sales force into the solutions sales force with one phase represent NCR both in terms of solutions as well as in the maintenance base. I feel very confident that will give us stronger offer and an more efficient sales force and I am sure that will give us the growth rate that we have again. I understand that you have some concerns about it. I am obviously less concerned and you seem to be and I think the coming three quarters will be similar to the one that we had in the 2000. In the year 2000, when we ended up with again a mid-teen kind of operating income and we are very confident that we will have growth in Asia-Pacific even this year over a very strong comparison last year.

Can you talk more about the integration of the maintenance in solution sales force? Is that process complete across your three key solution segments?

Yes. It is very important as it is complete graphically It is complete in all the major markets.

And is this initiative going to result in additional job elimination, some overlapping activities that are simply going to be completely removed?

Clearly. We are looking forward for the possibilities to reduce expenses every time we can and that might be the case. That is not the issue why we did this. We really believe because to be frank about it our competitors are breaking this point. We really believe that our customers want to deal with one organization and buy the solution as well as the maintenance and that is why our

less integrate the separate service sales force into the solutions sales force so we have one phase of the customer and we can discuss the whole investment, total cost of ownership, because that is what our customer wants.

I think that makes sense.

Last question on ATM's. You gave us a little bit of a picture in terms of what you saw in Asia-Pacific during the quarter? Would you mind talking about general trends across the other geographic region in that business?

Clearly it is more of a replacement market in United States. We talked about that before. I think the real opportunity in United States is upgrading the existing install base to what we call web-enabled ATMs, the full function ATMs. We have some really interesting activities going around web-enabled banking, we talked the 7 to 11

project as a lot of interest from other players with that kind of ATM that provides much more than only dispensing the cash or even depositing cash. It talks about cashing checks and buying money orders. That is the opportunity in the United States. If you look at

it also varies a little bit by country, but the number of ATMs installed by million people in United States is about twice the number of Europe about 1150 versus 550. So there is still a great opportunity to deploy more ATMs to increase the convenience level for the consumer in Europe. Clearly Europe is affected by capital slowdown and I also think that the Euro which may be we did not talk too much about we had significant activities to convert to Euro last year, which we certainly did talk about during last year and I think that also affected little bit the activity level of the 1Q and on the Asia-Pacific I think I have made my comments on Asia-Pacific.

Would you mind us giving us a little more color on the currency impact, you mentioned that as one of the negative factors affecting margins in particular in ATM?

Yes in the ATM space we really talked about four different things, currency was one of those four and the four were probably roughly on par in terms of the size. If you look at the year over year change in terms of currency what we can see is that we have some positive benefits in the year ago period that we didn't have it in this and that primarily drives the difference.

Okay. Thank you.

Our next question comes from Kartik Mehta of Midwest Research.

Good morning. A couple of questions

Firs on the ATM side, you said you talked about financial self-service would return to mid-teen levels as you grow your service revenue and the benefit for the sale of higher margin full function ATM, the demand for ATM takes longer to occur than this year. Do you still anticipate that you could return to the same type of operating margins mid-teens?

I think we have to be careful, we do not have a confusion by what I mean by full function ATM, I do not mean the convenience banking I talked about on Matt's question. I am talking about machines that does more than only simple tax dispenses. You basically have what we call an entry level ATM. You have the tax dispense in the full function ATM and then you have these convenience banking machine that does a lot more than dispensing and depositing cash and I was more referring to the full function ATM, not necessarily the convenience banking.

This quarter was impacted by the mix in the ATM for the region and the margin?

As you know we are the most global player in this industry and countries have different preferences for different kind of machine. If you go to Japan, where we all know

to, but if you look at Japan their ATM is very different from an US machine and the same thing also holds true for Spain versus some other countries in Europe. So if you get a mix difference between countries you have to give the mix difference of all products and in this quarter we had more of dispensing ATM than full function ATMs and we expect and you will receive in our final and all the activities and we expect that to go back to a more normal mix.

In terms of trying to give color how far was it all? I mean was it normal mix 50:50 and now with 20:80?

I do not want to comment on that. Since I have given you the color I want to give you.

On the other solution side what do you think the negative revenue comparisons will next quarter will be the last quarter you believe that will have negative revenue comparisons and anticipate that it will give positive revenue? Are the other solutions in the second half of the year or will it take longer?

No. I think my guidance for all that it will be down obviously pretty substantially in the next quarter. I think it going to follow through the year in terms of the year over year comparison.

So will be negative throughout the year?

Yes. I expect it will be.

Great thank you very much.

Our next question comes from Jay

of Buckingham Research

Thank you.

Earl just a little clarification on the guidance for 2Q revenue where you say data warehouse revenue in the 2Q down 0 to 10 percent. Retail down to 20 to 25. Are those sales only financial service and customer's services are expected to be roughly flat. So I take that to mean all customers sources. So I am also assuming that your guidance is sales only on the data warehouse and retail stores is that correct?

Yes that is correct. The guidance we have given you everyone historically has been for the solution and we do in general for the maintenance side and that is what I gave you.

Okay.

Second question on ATMs in reading consulting reports and things like that I see to be reading that more and more banks are least in the

or talking to vendors about improved technology web-enabled machines. Is there anything to that any hope for a pick up that way in 2002 or the bank is just putting out enquiries without doing anything?

Jay this is Lars. Yes Lars. We talked about this on the call a couple of times before that the banks basically that we have four channels to distribute their services is to branch the PC bank in the telephone banking and then the ATM channel. ATM channel is one of the cheapest channel. Clearly much cheaper and lower cost than the branch. So what the banks are trying to do is to move as many of the transaction as possible out of the branch either to the ATM side or to do with the PC side. The ATMs historically and technically the way we know them today are only capable to do basically very limited transactions like dispensing cash. I mean the

today is done in an envelope and the system is not recognizing the amount of money that you actually put into the envelope. So to give the consumer confidence and the convenience to go and do more of these transactions that we typically do in the branch. It is absolutely paramount that the ATM installed base will be called web-enabled because when you have a web enabled ATM network you can provide a lot of other transactions than only dispensing cash and also

know to accept technology which will allow the machine to actually count the money that you are depositing and give you an instant confirmation that you have deposited a $125. These are technologies that are going into the new machine and as United States being the most penetrated ATM market in the whole world as I said the 1158 million people twice the size or twice the number compared to Europe. The web-enabled opportunity to upgrade existing machine through this technology is a great opportunity for us here. We have today several banks in the United States who are deploying these technologies and like always I expect that when the leading banks deploying this you will see all the banks following suite quickly because if it comes to competitive edge.

Lars one final going back to the sales force comment the consolidation of the sales force, the maintenance sales is now part of the solutions sales force. Can you put some classification on numbers of people affected? It sounds like this should have been a nice cost reduction or expense reduction area and I am just not sure what you did and how much expense?

I will say it again. We did not do this with the prime objective to save expense. I hope so. More importantly I hope we will be able to upgrade the skills of our sales force both selling solutions and selling maintenance and even more important than that, we will provide one phase to the customer and we can have one sort of price negotiation we have one person talking about total cost of ownership including the cost of solution as well as the cost of maintaining the solution for many years to come and that last argument was the prime driver for Howard and me to make sure that we make this integration.

Will there be some expense savings?

To be quite frank about it Jay I think we have done very well on our expense management in the past five to six quarters. If we see an expense opportunity of reduction we will take it, but it is not the driver for the decision.

Now the reason for asking the question again was looking at the expense which are tightly controlled I am trying to decide whether there is a increment I should factor in or not every thing you did is sounds like it should be done and has been done on the one phase to the customers specially but some salesmen are not trained to do that others may need training others may decide to leave. So I am just going to leave on my private assumption alone because I do not know where it is taking?

You should do that. Let me be more aggressive. We are talking about capturing customer revenue for maintenance both from our NCR solutions you want to have a capture rate and you want to capture service revenues from other suppliers all point of sale ATM 's, and we want to capture service revenue from high availability the most important thing for us is to have the best possible sales forces out there, its not to save a million dollar on that sales forces.

Okay Lars. I think I got the message. Thank you.

Our next question comes from Erick Brethenoux of Lazard Freres

Hai guys. Two questions.

The first one is to do with the upgrade. It seems that in tough times you always find excuses to postpone the upgrades, but in this quarter you guys seem to have done nicely about that. Are you seeing a new

cycle, are you seeing them

before, is it getting shorter and is it getting back to upgrades or is it more of an

quarter?

Our customers are finding excuses to do the upgrade. They try to find all argument to get the capital expenditure even in tough environment because most of our customers can may be defer and we talked about this before and the upgrade for a quarter for two quarters after that it becomes very painful not to have the capacity. Even if the economy is slow and CAPEX environment is slow the growth of data is still exponential, and that means that every one of our customer are running out of juice running out of capacity. I told you about the number of deferrals that we captured from 3Q and 4Q of last year. I told you that because of it's important for you to understand first of all we don't lose customers and secondly the upgrades are inevitable, there is no choice. You can maybe defer it for a quarter or two, but you will need it. And yes we had a recent quarter in terms of upgrades, but we also had some pent up demand.

The other question to is do with the software portion of that now that you have a nice customer

management solution and actually expanding that, are you finding new competition in your way or on the contrary are you finding new partners new competition I am thinking like Siebel and as such new partners, people like being the subjects

and others that can look out to your solutions?

I do not view Siebel as a competitor, I view Siebel and SAP and the EPRs in general more as a potential partner. We do work with them on a technical level to make sure that their systems, which are important source system of data for our data warehousing, are working as smoothly as possible. I actually think some where higher software

is not only the question of application it is also question of utilities and tools and improve the efficiency in the software management of the database Teradata.

In that case would that mean that Siebel could actually drive some of your sales is that a possibility?

No I do not think the marks mature yet for that, Let me then talk about partners because the real potential here is the people like Accenture and KPMG. We are clearly making a lot of progress with the relationship with those people. First of all, I think they recognized that the data warehouse market is a very effective market. I mean 30 percent of the market is professional service that is their business, and from strategic point of view I have been saying this for long time, I am absolutely willing to partner with those kinds of players and give them a big shank or all of the professional services business because when the market rebounds back to the normal level of capital expenditure, I expect the data warehouse market to be growing like 20 percent. If I have to cater for all the professional services in the growth market like that, I will have to hire a lot of professional service people every month and I would prefer to have a relationship to temper the growth in the professional services amply ease at Tera data to have a relationship with the people like Accenture. Their willingness in the last 2Q to 3Q or that interest in partnering with us is substantially higher that I believe will also give us the benefit of coming in to customers that we might not be covering today with own sales forces. That I think is the most important short-term partnership. On the issue of ERP's, I do not think we competent with each other, I think we compliment each other and could that complimentary relationship become more of a partner yes potentially I think it is a bit premature to speculate.

Thank you.

Our final question this morning comes from Ryan

of David J.

.

Hello.

I was trying to understand operating profit trying to compare apples and I think you guys have something like last year it was $38 million or $39 million and then I added to this year the $14 million differential

to get nearly 23 compared to 38, is that fair or did I miss something?

I think that roughly fair if just making the pension adjustment.

Okay.

And then as it relates to warehousing, I guess I was surprised to see the profitability there. I was thinking that we are going to may be $50 million swing in the year, which would give you some operating profit of $25 million for the full year. Should I be thinking a little bit north of that given what you see and how the 1Q came in?

Certainly we are very happy with the 1Q and I would certainly agree that implies more than $25 million in profit for the full year.

Okay.

Was my expectation right as to what you guys are seeing, that was the swing?

No I think three months ago we suggested the swing was going to be greater than $50 million. So I think that is what we said on the 1Q call.

And then for full year based on what you see in the pipeline, are you going get some sort of growth there in warehousing like 9 percent or something like that?

We adjust our guidance by solution for the individual solution for the full year this call we obviously took NCR guidance down in total and there is some impact across all the solutions on guidance we have given you for the full year. Last quarter was we expected (Indiscernible] to at about 10 percent revenue growth. So you can take from that the given capital-spending environment. In general, we are modeling our overall expectation.

I do not know if this is asking for too much, but is there any way to get when you spend your R&D 1Q year ago versus what you spend this 1Q?

We have broken it out obviously for the company in total, but we don't break it out individually by solution.

Okay thank you everyone for joining us and this morning. If you have any follow up questions please feel free to give me a call. Thanks for joining us. Okay all right thank you.