NCR's products don't "ka-ching" anymore, but the company still
registers with people and money. Born in the 1880s as National Cash
Register, NCR is a leading maker of ATMs, point-of-sale (POS)
terminals, bar code scanners, and related printer consumables such
as paper and ink. The company develops financial services software
for banking, retail, travel, and hospitality applications. NCR's
services segment provides maintenance and support, as well as
professional services such as systems integration and managed
services. NCR does business in more than 180 countries with
international customers generating half of the its sales. Add it
all up and NCR's products enable more than 700 million transactions
a day.
Operations
NCR's hardware, software, and services are intertwined so
perhaps it's appropriate that each segment supplies a roughly equal
amount of the company's revenue.
The company's hardware products, about 35% of revenue, consist
of several lines of automated teller machines (ATMs), cash
dispensers, cash recycling ATMs, and hardware for check and image
processing. Among other hardware products are point-of-sale (POS)
terminals, self-checkout kiosks, order and payment kiosks, bar code
scanners, printers, and peripherals.
NCR's services segment generates about 35% of revenue by helping
users get hardware and software up and running and, in some, cases
managing entire systems. The company's Predictive Services helps
customers identify and address technology issues.
NCR's software products, accounting for about 30% of revenue,
run the company's hardware. Its software platforms include the Cx
Banking self-service ATM application suite for financial services,
the Retail ONE and Aloha Enterprise software for the retail and
hospitality industries, and NCR Silver, a cloud-based point-of-sale
(POS) system for small businesses.
Geographic Reach
The US is NCR's largest market, accounting for about 50% of
sales. Europe and the AMEA (Asia, Middle East, and Africa) region
account for more than 25% of revenue while the Asia/Pacific region
- including Japan - generates about 15% of revenue.
NCR spreads its manufacturing operations around the world,
placing them in low-cost regions that are close to suppliers and
customers. Its manufacturing facilities are in the US, Brazil,
Hungary, China, and India.
Sales and Marketing
NCR's products and services are marketed primarily through a
direct sales force, although it does tap a network of distributors
and resellers.
Recurring and product revenue each supply more than 40% of NCR's
sales with installation services accounting for 15%. NCR's revenue
from software has increased by more than 20% annually while
recurring revenue has risen about 7%. They're a consistent source
of sales and software has had a positive impact on the company's
margins, rising to account for about 30% of gross margin in 2017
from about 10% in 2010.
Financial Performance
NCR's revenue has been relatively flat for the past four years
as it has tried to generate more revenue from software and services
and rely less on hardware.
The company reported revenue of $6.51 billion in 2017 compared
to $6.54 billion in 2016. Software and services each grew at a 3%
rate in 2017. Growth in cloud, software maintenance, and
professional services drove software revenue while implementation
and hardware maintenance services pushed services revenue. Hardware
revenue dropped 6% on declines in Automated Teller Machine and
consumables revenue because of the IPS divestiture. Sales of
self-checkout and point-of-sales systems rose in 2017. Sales rose
2% in the Americas and the Asia/Pacific region, but fell 4% in the
EMEA region.
Net income fell 14% to $232 million in 2017 from 2016. The US
tax bill of more than $240 million, up about 170% from 2016,
reduced net income considerably. NCR was charged for repatriating
foreign income as part of the US Tax Cut and Jobs Act enacted in
2017. The company's tax rate should be lower in the future.
NCR registered about $537 million in cash at the end of 2017, up
from $498 million for 2016. Free cash flow fell to $461 million in
2017 from $667 million the year before.
Strategy
NCR is building software, hardware, and services to help
businesses and customers conduct transactions however they want -
what NCR calls the omni-channel experience. That could mean
conducting an ATM transaction with a live teller via video or
checking out of a grocery store without putting items on the
checkout conveyor belt.
The combination of hardware and software can be seen in new NCR
checkout products such as FastLane SelfServ checkouts and the
FastLane mobile shopper, which enables shoppers to scan grocery
items as they move through a store. The Picklist Assist product
uses computer vision combined with artificial intelligence software
to recognize the fruits and vegetables that shoppers put in their
carts.
NCR's software business reached $2 billion in revenue in 2017,
nearing a third of total sales. Overall, software costs less to
develop and has higher margins than hardware. Software is easier to
update and send changes to devices with the push of a button.
NCR continues to look for ways to streamline its hardware
operations to reduce costs and make better use of its facilities
and infrastructure. The company is shifting its manufacturing
strategy to a more variable cost structure that would reduce
exposure to hardware cycles. It also works to improve its supply
chain through localization, inventory control, improving on-time
delivery, and increasing focus on quality.
Software drives the hardware and that's what NCR emphasizes.
Software can be updated more frequently to provide better
experiences for stores and their customers.
Mergers and Acquisitions
In 2016 NCR acquired CimpleBox Inc., a provider of simplified
Software-as-a-Service-based back office software to small and
medium-sized businesses such as restaurants and retailers.
CimpleBox software helps businesses reduce the time spent on manual
processes, consolidates data and scheduling, and gives managers
more insight into the business and day-to-day operations.