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Unisys splits with CEO McGrath

Banks on financial help from...Goldman Sachs

Enough of that, then. The board of directors at server and services company Unisys has come to the conclusion that Joe McGrath, its president and chief executive officer since 2005, is not the right guy to lead the company forward. And as such, Unisys has begun a search for a new CEO.

McGrath agreed to step down effective at the end of this year and will be running the company's day-to-day operations until that time.

In a statement put out by Henry Duques, chairman of the Unisys board, the company said that everyone "agreed that a change in leadership would best enable Unisys to move forward on accelerating execution of the company's strategy." Sounds like layoffs, right?

Unisys, of course, is the combination of the venerable Sperry and Burroughs mainframe businesses that has created a technically sufficient line of ES7000 Wintel boxes over the past decade. The company also has a reasonably large services business and had a well-regarded break-fix services business for servers, too. (Unisys used to talk about its support for Dell boxes, way back when, and still does offer such support, as it turns out.)

While that ClearPath mainframe line and the related software and services revenue stream is still a pretty good business for Unisys, the company many years ago backed off from making entry-level servers. In October 2005, it inked a deal to co-develop high-end x64 servers with NEC. And in the past year, it decided to sell re-branded Dell rack and blade servers and a Sun rack server instead of doing its own development.

With the joint NEC-Unisys x64 box, dubbed the Xeon Monster, delivered last week, the transitions that McGrath and his team were steering Unisys through are largely done. So the timing of McGrath's departure is probably not an accident.

Not helping matters is displeasure on Wall Street that Unisys has not done better for itself financially. A New York investment firm named MMI Investments has been pressuring the top brass at Unisys and, thanks to its 9.1 per cent stake in the company, has been able to get two seats on the board of directors to jack up the pressure even more.

In July, Unisys hired investment bank Goldman Sachs - well, it was an investment bank before this week - to come up with a battle plan to get Unisys growing again or to at least "maximize shareholder value," which is usually Wall Street code for "find a buyer." NEC is an obvious choice, if the company is even interested. And if Goldman Sachs can help fix the problems at Unisys while trying to save its own cookies. (Maybe Warren Buffett wants to buy a server and services company?)

Rather than focus on hardware sales, Unisys has shifted to selling "solutions" - and not the fun kind like stout or vodka. The idea was to move up the IT stack and leverage the considerable experience that Unisys has in financial services and government to peddle services and software often created by others as a finished product that solved specific issues at specific kinds of companies.

It's not a bad strategy, but it is just a difficult one to sell today in a financial services arena that can't seem to find a floor to stand on and governments that are bracing for recession or worse being hesitant to spend on IT.

Unisys has been shrinking a little bit every year through the 2000s, and in 2007, it posted sales of $5.65bn and a loss of $79.1m. In 2005, the company lost $1.7bn, and the last time it made a profit on an annual basis was in 2004 - and that was only $38.6m against sales of $5.86bn.

The company's technology business - meaning servers and storage - has shrunk from $1.2bn in 2003 to $805m in 2007, while its services business has grown a tiny bit from $4.7bn in 2003 to $4.85bn in 2007. The Unisys services biz peaked in 2006 at $4.92bn, and that is one of the things investors are upset about. For the first six months of 2008, Unisys had $2.64bn in sales and lost $37.4m. ®

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