The restructuring it set in place at the beginning of this year (CI No 1,835) has left Tandem Computers Inc in a bullish frame of mind, with strong finances, no debt and lots of cash, according to president and chief executive James G Treybig, visiting the UK this week. Jim Treybig, who founded the Cupertino, California fault-tolerant systems company back in 1974 after seven years at Hewlett-Packard Co, says the company is operating profitably, and that profits are back up. We’ve been impacted by a slowdown in banking, but have seen very good telecommunications business, growing at 30%, he says. After three years of tough quarters it’s hard to be optimistic, but I am optimistic of a pick-up – we’ve had four quarters in a row of increased revenues, and we may be in for a record quarter in Europe this time. Tandem has not seen a collapse in Japan, he says.
Plug in
The telecommunications business is seen as key to the company’s future growth in selling fault-tolerant, distributed on-line transaction processing systems. Transaction processing will become a service industry in the end says Treybig, who foresees a day when retailers, for instance, will simply plug their point of sale equipment into the wall for processing and routing by the telecommunications company. A failure in such a network could be something that you never recover from. We are working in the areas of LAN and network connectivity and client-server for the future. Telephone companies also happen to demand Unix, so that’s where Tandem is pushing sales of its Unix systems. The problem with Unix is the transition – not everyone is ready to move to Unix all at once. Banks are not ready, but messaging and telecommunications customers are willing to pay a premium for fault-tolerant Unix, says Treybig. Today, Unix is still not as suitable for fault-tolerance as Tandem’s proprietary Guardian system – one problem is it’s a shared-memory multi-processing system, as opposed to the independent memory used in the Guardian systems. Another is its lack of support for transaction processing. Why hasn’t Tuxedo been successful after all this time? asks Treybig. On Tandem’s competitors – try to imagine me as unbiased – he says that Stratus Computer Inc has done well by focusing on specific applications – but has done a lot less well with IBM Corp than we predicted.
By John Abbott
Tandem is now similarly moving back towards selling systems that can be replicated. Stratus has recently opted to use Hewlett-Packard’s Precision Architecture RISC in its hardware, a strategy that puts a question mark over Hewlett-Packard’s existing relationship with Sequoia Systems Inc, but Tandem is happy with its choice of the MIPS Technologies R-series RISC chip, now the basis of both its proprietary and open systems, even after MIPS’ financial problems and its eventual take-over by Silicon Graphics Inc. It is the only open chip, fabricated by different companies. The merger has doubled investment in the chip, and the Japanese are on board through the strong relationship with NEC Corp. The Japanese don’t want to be tied into Intel Corp, they want their own chip, and NEC is a fine fabrication house, he says. Although Treybig claims to be a fan of Unix, he warns that it must get its act together on issues such as multi-processing and transaction processing or other things may be happening by then. Like everyone, Tandem is keeping an eye on Microsoft Corp’s NT. Tandem has been talking all over the place this week, and on the restructuring, begun in January, David Rynne, Tandem’s chief financial officer told Reuters that it is slightly ahead of schedule and that the company is now focusing on growing revenue again as it cuts costs. The company is on target to achieve its anticipated savings of $40m to $50m this fiscal year to the end of next month through cost cutting and it may have more reductions in headcount than anticipated by 1993. We have accomplished savings and headcount reduction quicker than we expected, Rynne said, adding that one year from now, Tandem’s t
otal headcount will be reduced by over 700 employees, with some of those coming from the sale of Tandem’s printer circuit board facility to SCI Systems Inc.
Look at Wang
In January, Tandem took a restructuring charge of $80.5m after taxes, as it consolidated some facilities and reduced its workforce. You can cut your costs but if you don’t raise your revenue… well, look at Wang, said Treybig. In fiscal 1991, Tandem’s biggest source of revenue was still from the banking industry, which comprised 24% of its total $1,900m turnover. We have worked hard to identify new areas like ‘smart telephones’ and as that takes off, your growth will increase, Treybig said. Tandem now owns a few telecommunications software and networking companies, most notably Ungermann-Bass Inc, and Treybig pointed out that Tandem’s telecommunications business grew 30% last quarter. We are not doing as well as we would like but it’s primarily due to the economy, Treybig said of overall performance. He declined to predict future earnings or revenues, or to predict the strength of the economy. We are working hard so we can be more profitable either way, he concluded.
