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Unisys: balance sheet stronger, but sales lower

Profits under pressure in Q4

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Unisys continues to feel the squeeze from its larger competitors in systems and services. In Q4 2010, the company reported revenues of $1.04bn, down 9.8 per cent compared to the Q4 2009. It brought $99.2m to the bottom line, a decline of 13.4 per cent.

In the quarter, Unisys booked $859.7m in services revenues, off 11 per cent year-on-year. Technology revenues, which include servers, storage, and other systems software and hardware, fell only 3.9 per cent, to $184.9m. Hardware revenues were dominated by ClearPath mainframe sales, but server sales across the combined ClearPath and x64 server lines actually declined by 10 percent to $152m, according to Janet Haugen, chief financial officer at Unisys, who went over the numbers for Q4 in a conference call with Wall Street analysts.

Other technology sales were up 43 per cent, to $33m, excluding divested businesses. This made what would have been a tough quarter for hardware and software a little bit easier to cope with for Unisys. This category includes EMC disk arrays that Unisys resells for its systems, alongside third party products it peddles on behalf of partners for its systems.

ClearPath mainframe sales were nothing at all like the 69 per cent rise in mainframe sales that IBM saw in its fourth quarter. The reason is simple: Unisys did its mainframe refresh late in 2009 and early in 2010 and already had its bump. IBM didn't get rolling with new products until September last year and had years of pent-up demand for its System zEnterprise 196 boxes. (We'll see if IBM's mainframe mojo can hold up for more than a few quarters. Many have their doubts.)

For the full year, Unisys had $562.2m in technology sales, up two-tenths of a per cent compared to 2009. Enterprise servers represented $462m of that, and rose by 1 per cent. Ed Coleman, president and chief executive officer at Unisys, said in the call that ClearPath mainframe sales rose by 5 per cent for the year, so declining x64-based servers were the real problem. Other technology sales rose by 4 per cent, to $100m.

On the services front, Unisys lost ground in all of its product lines in the fourth quarter. Systems integration revenues were off 12 per cent, to $302m, while its IT outsourcing unit had a 2 per cent drop, to $315m. Infrastructure services revenues were off 20 per cent, to $115m, business process outsourcing was off 14 per cent, to $72m, and maintenance on hardware and software fell by 25 per cent, to $56m.

For the full year, services sales were off 10 per cent to $3.46bn, but margins were on the upswing. IT outsourcing was flat for the year, at $1.26bn, and systems integration fell by 10 per cent, to $1.22bn. Infrastructure services fell by 16 per cent, to $472m, while business process outsourcing took an 18 per cent hit, to $270m. Core maintenance services were off 25 per cent, to $231m, for the whole of 2010.

All told, revenues fell 8 per cent, to $4.02bn, for the full year. Net income was up, however, by 24.7 per cent, to $236.1m.

This all sounds a little bit grim, but there is some good news. Unisys is trying to wean itself off its reliance on Uncle Sam, and Coleman said that IT outsourcing outside of the US federal government was up 6 per cent for the year. Sales of products and services to the Transportation Security Authority, which does security at US airports, fell by 22 per cent in 2010, to $117m. That whole TSA revenue stream goes away in 2011 (Unisys lost the contract in November), so the sales reps at Unisys have a pretty big hole to fill.

But as Coleman reminded those on the call, Unisys is the prime contractor along with partner Google in building a compute cloud for the General Services Administration, and it is looking to get more such deals because of its long-standing relationship with the US federal government. For the year, Unisys had $842m in total revenues to Uncle Sam (down 8 percent), with 34 per cent going to the Department of Homeland Security, 26 per cent going to the Department of Defense, and the remaining 40 per cent going to other agencies.

Moreover, Unisys refinanced its various debts and notes, and threw off lots of cash this past year, so it is now in balance. The company exited the fourth quarter with $828.3m in cash and equivalents and had $823.2m in long-term debts. (The company has $1.51bn in long-term post-retirement liabilities, however, which is a big deal to anyone thinking of acquiring Unisys.) The company also had a backlog of $5.8bn in services revenues as 2010 came to a close, down a smidgen from the $45.9bn as 2010 got started.

Looking ahead, over the next three years, Unisys hopes to grow its outsourcing and systems integration businesses at market rates and maintain stable technology hardware and software revenues on an annualized basis. Coleman said that Unisys was looking at getting ClearPath machines into new areas and through new channels, and said the company was contemplating making ClearPath appliances, and even saw the possibility of some growth. But the commitment is for maintaining sales and profitability.

The company also hopes to boost its pre-tax annual profit to $350m by 2013; this was $223m in 2010. ®

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