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NCR Growth Looks Strong With Acquisitions and Diversification

Stocks in this article: NCR IBM INTU

NEW YORK (TheStreet) -- NCR Corporation (NCR), aka National Cash Register, has long been associated with the ATMs that power transactions for financial institutions around the world. Through restructuring and a series of acquisitions, the company is now shifting its focus away from hardware and putting a stronger emphasis on services and recurring revenue.

In fiscal 2012, revenue was heavy on the hardware side, which made up 46% of total revenue. Services were 44% of NCR's total, while software made up 10%.

During its annual investor presentation, the company highlighted the model used by tech giant IBM (IBM) as a path for the future. In 2012, IBM relied on services for 59% of its revenue. Hardware and software made up 16% and 25% respectively. NCR also wants to diversify away from hardware sales, and it is using acquisitions into the software and services market to do so. In fact, the theme of the investor presentation was "the new NCR: hardware-enabled and software-driven."

NCR puzzled Wall Street with its latest acquisition, Digital Insight, an online and mobile banking company. NCR is paying $1.65 billion for the acquisition from private equity firm Thoma Bravo. Wall Street was skeptical:  Intuit (INTU) sold Digital Insight just three months ago to Thoma Bravo, who paid only $1.07 billion. NCR attempted to acquire the firm then, too, but could not secure the proper funding in time. The dawdling cost the company quite a bit.

Digital Insight is the leading United States-based software as a service, or SaaS, provider of digital banking software. In short, the company helps customers with mobile banking, online banking and bill pay.

Now, NCR is hoping that Digital Insight will help transform NCR's growing financial revenue base. The acquisition of Digital Insight gives NCR access to 1,000 financial institutions that use Digital Insight's technology. NCR will be able to cross-promote products and potentially sell its newly acquired software to some of its 625,000 ATMs around the world.

The acquisition of Digital Insight followed a recent $84 million deal to acquire Alaric Systems. NCR is buying the British fraud detection company to improve its financial offerings to its existing customer base. Alaric sells its products to banks, payment processors, card networks and retailers.

After closing the latest acquisitions, NCR will see its financial services transformed. More important, other business units like software and services will get a boost. Software revenue will be propelled over the $1 billion annual mark. Over $300 million in recurring revenue will also be added, which provides a nice cash flow base.

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