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Mainframes drive strong Q2 for Unisys

Dark horse pulls through

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Suddenly, it is feeling a bit like the post-recessional early 1990s, at least in MainframeLand.

Mainframe maker Unisys reported its financial results for the second quarter this morning, before the market opened on Wall Street. Thanks to booming sales of its profitable ClearPath mainframes, the company booked $59.4m in net income, up 77.3 per cent, despite only posting $1.06bn in sales, a decline of 4.1 per cent compared to the year ago quarter. The sales decline was mostly attributable to some big services contracts sloshing out to the third quarter. (These results have been rejiggered to account for the divestiture of the HIM Medicare processing business by Unisys after the company sold off the unit in January.)

In the quarter, services sales for Unisys dropped by 9.1 per cent to $911.3m, while technology sales (which includes servers, storage, and other hardware and software) rose by 46.9 per cent, to $145m. Enterprise Servers, which include sales of the ClearPath mainframes (running the Unisys MCP and OS 2200 operating systems) as well as ES7000 x64-based machinery (running Windows and Linux), had a 71 per cent jump in sales in the second quarter, to $132m, while other technology sales were down 38 per cent, to $13m.

Janet Haugen, chief financial officer at Unisys, said in a conference call with Wall Street analysts that ClearPath mainframes revenues had more than doubled compared to the second quarter of 2009, marking the third quarter of strong mainframe sales in a row and justifying the investments Unisys made to upgrade its mainframe iron, which it did last May; the company fleshed out its MCP midrange in March. It was those mainframe sales that pushed gross margins to 61.3 per cent, compared to 40.1 per cent a year ago, that helped put some black ink on the bottom line.

So has the shift to outsourcing and low-cost onshoring at Unisys, said Ed Coleman, president and chief executive officer at the company. Unisys has approximately 24,000 employees, and Coleman said that about a quarter of them are now offshored or working from low-cost onshore facilities (he didn't say where), five points higher than a year ago.

Coleman said that some of the decline in the revenue for the services business was because of a shift the company made many quarters ago, deciding to focus on security, data center transformation, end user outsourcing and application modernization, ditching low-margin businesses. Money from Uncle Sam, a big portion of the Unisys services and ClearPath gravy train, was down 12 per cent in the first half of 2010, said Coleman, but the company is expanding out to new agencies, such as the US Department of Agriculture and the National Geospatial-Intelligence Agency, to compete for deals.

Last fall, Unisys lost a $492m systems integration and technology contract to Computer Sciences Corp for the Transportation Security Administration, which Unisys is protesting. Since 2002, that TSA contract has brought Unisys approximately $2bn in revenues.

In the second quarter, systems integration revenues at Unisys were down five per cent, to $335m, while information technology outsourcing fell two per cent, to $317m. Infrastructure services dropped 20 per cent, to $115m, while core maintenance services were off 23 per cent, to $59m. Business process outsourcing took a 20 per cent hit, to $85m. The company had a services backlog of $5.7bn as it exited the second quarter. Orders were up in the United States and Europe, but were down in Latin America and the Asia/Pacific region.

Since Coleman has been at the helm, Unisys has been struggling to get out from under a load of debt, and made some more progress on this front in Q2. In early 2009, Unisys had over $1.2bn in debts - too much for a company of its size, perhaps - and now it has $835.7m in long-term debts, but $496.5 in cash and equivalents and $120m in restricted cash relating to the HIM business sale. That's $172m in net debt, about a quarter of what it was a year ago. ®

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