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Technology Stocks : Data Dimensions
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To: TA Trader who wrote (1252)5/13/1997 8:41:00 PM
From: choban   of 4571
 
I have worked closely with Unisys Federal Systems in Mclean and this announcement is very bearish to DDIM based on my experience with Unisys on similar deals with small companies who have software solutions that could hurt Unisys's mainframe and networking hardware sales. First Unisys makes their money selling their hardware, not on reselling other companies' software. DDIm's Ardes product could cause an installed Unisys mainframe customer to opt for a cheap software solution instead of buying an upgraded mainframe which the Unisys salesmen have much more quota for and get paid better commissions on. So if DDIM's Ardes got into a competitor of Unisys's hands then, this competitor could sell a better solution and undercut the Unisys hardware sale.

So the long time field tested Unisys strategy in a case like this is to tie up the software vendor with an exclusive marketing agreement, which then lets the Unisys account managers offer a cheaper solution only when it becomes apparent that they will not get a hardware sale, so then they will offer the cheap software solution. Unisys usually pays the vendor an upfront payment for product enhancements which is usually the only big order that the software vendor ever gets. The fact that DDIM has not even gotten this upfront money, yet they signed exclusively is a bearish sign for DDIM.

An example of this Unisys strategy happened 3-4 years ago, when their Eagan, Minn division was selling an expensive computer called the UYK-43 to the Navy for $750K each. A small software company called Visicom, developed an application which they marketed to Unisys and their competitors which could emulate this UYK-43 computer on anyone's platform for 5% of the cost of a UYK-43. Unisys paid Visicom $1M upfront and signed an exclusive distribution agreement with Visicom, then they told their salesmen to only sell the Visicom software as a last resort. This enabled Unisys to sell their expensive UYK-43's for 3 more years, because the cheap competitor (Visicom) had selected a distributor whose motivation was solely to pay them to keep them off the street. I think that DDIM looks like the Visicom in this case.
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