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Stingy Uncle Sam dumps a Q1 loss on Unisys

ClearPath mainframes on the rise

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Uncle Sam slapped Unisys around during the server and service provider's first fiscal quarter of 2011.

The delay by Congress and President Obama in delivering a Federal budget and a lost contract with the Transportation Security Agency combined to subtract around $50m from the company's books, yielding a loss of $39.4m – almost four times as deep as the same quarter last year. Sales fell, as well: by 7 per cent to $911.2m.

Ed Coleman, chairman and CEO at Unisys, said in a conference call with Wall Street analysts on Monday that the delay in the Federal budget accounted for about $20m in lost revenues when the cost-plus "fill and bill" contracts that Unisys can normally secure with Uncle Sam were curtailed because the continuing resolutions put out by Congress had ceilings to limit spending on all projects.

Another $30m in revenues was wiped out in the first quarter by the loss of a consulting gig with the TSA, a contract that Unisys lost in the fourth quarter of last year. This is going to make for some tough compares going forward.

Generally speaking, the US government accounts for about a fifth of Unisys' overall revenues. In the first quarter of 2011, the feds accounted for $157m in revenues, with 29 per cent coming from the Department of Defense, 22 percent from the Department of Homeland Security, and the remaining 49 per cent from other agencies.

In the quarter, services sales at Unisys were $800.3m, down 6 per cent, while technology sales (servers, storage, software, and other stuff) were $110.9m, down 13 per cent.

The ClearPath mainframe line, oddly enough, was a bright spot for Unisys, with sales up 7 per cent, as CFO Janet Haugen explained during the call – but sales of other servers and storage fell and could not make up the difference.

Haugent did not give out specifics for the ES and ClearPath lines of servers, but did say that overall enterprise-server revenues were down 3 per cent to $100m in the first quarter. She also added in a Q&A session that about 75 per cent of ClearPath revenues came from software, not hardware.

Other technology sales fell by 54 per cent, to $11m. Gross margins for the Unisys server business stood at 51.1 per cent during the quarter, down almost a full point.

Services gross margins were a mere 18 per cent, by contrast, which is why Unisys stays in the ClearPath mainframe racket. Systems integration services were down 3 per cent to $285m, and IT outsourcing brought in $285m in sales, but was down 5 per cent from the year-ago period. Infrastructure services took a 12 per cent hit to $110m, as did core maintenance services, which came in at $53m. Business-process outsourcing revenues were off 2 per cent to $67m.

The company ended Q1 with a $5.8bn services backlog, which was up 2 per cent compared to Q1 2010, and the gains were made in the United States, Canada, the United Kingdom, and continental Europe; the services backlog shrank in Latin America and the Asia/Pacific region.

In the quarter, Unisys continued to restructure its debts, redeeming $211m in high-coupon long-term debt (which hit the first-quarter books to the tune of $32m). On April 11, the company retired an additional $179m in long-term debt, which will give it another $46m charge in the second quarter. These moves will save about $53m in annual interest payments going forward. Unisys ended the quarter with $214m in net cash and $379m in net debt. ®

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