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Unisys tastes recession red ink

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Mainframe and x64 server maker Unisys is struggling, as it does from time to time. In the fourth quarter of 2008, slackening server sales and some tapering off in services revenues moved the company into the red.

For the quarter ended in December, Unisys had $162.1m in technology sales, down a staggering 39.5 per cent. The company's services business - which includes systems integration, facilities management, and tech support for its own and some Dell servers - accounted for $1.12bn in sales, down 11.8 per cent. Total revenues at the company came to $1.28bn, down 16.7 per cent.

Unisys put the brakes on spending as the economic meltdown started picking up steam last summer. But with the strengthening dollar, $99m in restructuring charges relating to 1,300 employee layoffs and other restructuring charges, and the basic costs of doing business as a manufacturer and seller of systems, the company can only go so far. In Q4, it posted an operating loss of $47.8m. After interest and other expenses and a $19.3m tax benefit, Unisys booked a loss of $58m. In the year-ago quarter, Unisys was able to bring $13.8m to the bottom line on sales of $1.54bn.

The ClearPath mainframe line, which had strong sales in the third quarter thanks to a product ramp, petered out in the fourth quarter thanks to the soured economy. The mainframe line also had a tough compare. Last year, Unisys got an $18.8m royalty payment from Japanese partner Nihon Unisys Limited, a deal that expired in March 2008.

Janet Haugen, chief financial officer at Unisys, said that in Q4, orders fell across most industries and geographies, except sales to the U.S. federal government, which had double-digit revenue growth and high single-digit order growth. The biggest hit Unisys took was among financial services companies, which still have lots of mainframes but which have been thrown into turmoil. (Well, many of them kinda fell in after stirring it up). She added that Unisys closed out 2008 with a $6.1bn services backlog.

Sales in the United States fell by 9 per cent to $575m, while international sales fell by 22 per cent to $705m. The strengthening of the U.S. dollar accounted for 7 per cent of the sales decline for the company as a whole as those international sales were brought back home to Blue Bell, Pennsylvania.

In Q4, Unisys booked $477m in outsourcing revenues, down 12 per cent, and $396m in system integration and related consulting revenues, down 4 per cent. Enterprise server sales fell by 45 per cent to $131m, while infrastructure sales (software and other gear that isn't servers) fell by 24 per cent to $160m. Maintenance brought in $85m in revenues, and the rest amounted to $31m, including custom technology products.

For the full year, Unisys' technology sales are down 21.9 per cent to $629.6m and services sales are down 4.3 per cent to $4.6bn. Overall sales have fallen by 7.4 per cent $5.23bn, and the company has booked a loss of $130.1m, more than the loss of $79.1m a year ago on $5.57bn in sales. The company ended 2008 with $544m in cash and equivalents in the bank, which is respectable for a company of its size.

Ed Coleman, who took over as president and chief executive officer back in October 2008, has a pretty tough job to turn Unisys around in this climate, and considering that he sold off PC maker Gateway to Acer after taking the helm there, it is reasonable to think Coleman may eventually advocate for Unisys to be broken up and sold off to various parties at some point. But this far, that doesn't seem to be the plan.

"We are moving quickly on actions to turn around the business, return this company to profitability, and generate cash," Coleman said in a statement accompanying the financial results. "To do this, we are building on the company's strengths while focusing our resources in fewer markets and portfolio areas where we can clearly differentiate ourselves and deliver superior value for our clients. We are also working to maximize cost-efficiency across our global operations and strengthen our balance sheet."

To that end, Unisys says that it will be concentrating its investments and resources on fewer, more-profitable IT segments. (It has not been specific about what these targeted areas will be and the products it intends to peddle there). Unisys added that it was "focused on enhancing its services labor delivery model," which sounds an awful lot like the services seller is going to offshore its experts. But Unisys did not confirm this, of course.

As we go to press, Wall Street is being hammered as Washington is wrestling with the economic stimulus bill, and Unisys is taking its lumps like most other public companies. But with its shares down 11 per cent today to 72 cents a pop, compared to the Dow Jones Industrial Average being down 4.6 per cent to 7887 points, Unisys has bigger lumps than the Dow.

Last spring and summer, Unisys shares were trading at around $5 a pop and gave it a market capitalization of $2.1bn. Today, Wall Street says Unisys is worth only $293m. (If you want a real shocker, consider that in 1999, Unisys shares were kissing $50 each). Any number of server or services vendors could pick up Unisys for pocket cash. In fact, Unisys can now afford to buy itself and go private, and it is a real mystery why Unisys isn't angling to do this with its stock price so low. ®

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