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Mainframes pump up profits at Unisys

Bucking Uncle Scrooge Sam

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Mainframe maker and services provider Unisys continues to improve its financial situation despite the loss of a major contract with the US Transportation Security Agency last fall. The currency exchange rate of the US dollar against other currencies in countries where Unisys does business didn't hurt matters, either.

In the third quarter ended September, Unisys rang up just a tad bit more than $1bn in sales, an increase of 6.2 per cent over the prior year's Q3. (Currency accounted for most of that growth, by the way.) Net earnings rose by a factor of 3.6 on a continuing operations basis, to $78.6m.

Sales of hardware and systems software – what Unisys blandly calls "technology" – shot up by 36.4 per cent to $143.8m, driven by strong sales of the company's ClearPath mainframes. On a conference call with Wall Street analysts after the markets closed on Monday,Unisys CFO Janet Haugen warned Wall Street not to get overly excited about mainframes, and that the best way to look at the ClearPath business – which is lumpier than an old mattress or bad gravy – was on an annual basis.

As it stands, ClearPath mainframe sales are flat through the first three quarters of 2011 compared to the same period in 2010, and Unisys expects for ClearPath sales to hold steady in Q4. So don't expect a big bump.

Unisys is predominantly an IT services company, and its services biz was under pressure because of the loss of that TSA contract, which brought the company somewhere between $30m and $33m a quarter when it was in effect. Services sales were only up 2.5 per cent in the quarter, to $876.3m.

The systems integration business was up 5 per cent to $306m, outsourcing was up 1 per cent to $330m, infrastructure services increased by 7 per cent to $124m, and business process outsourcing fell 5 per cent to $61m. Core maintenance on Unisys systems was flat in the quarter at $55m.

Unisys CEO Ed Coleman said during the call that excluding the US Federal business – which is hard to do with Unisys – revenues grew by 14 per cent in the quarter. Outside of Uncle Sam, the outsourcing business was up 12 per cent and systems integration was up 21 per cent.

Clearly, in the wake of severe budget pressures in Washington, Unisys sales reps have been banging on doors among manufacturers, distributors, and financial services companies. Outsourcing has now shown seven straight quarters of consecutive growth for Unisys, and its help desk offering continues to be strong, said Coleman.

Say uncle!

In the third quarter, about 30 per cent of the revenues that Unisys got from the US government came from various defense and intelligence agencies, with 26 per cent coming from the Department of Homeland Security and another 44 per cent coming from civilian agencies. The US Federal agencies made up 18 per cent of the company's total sales in Q3, and the public sector, including foreign, state, and local governments, made up 43 per cent of revenues.

Financial services firms accounted for 23 per cent of the Unisys revenue pie, with corporations spanning other industries making up the other 34 per cent. The commercial business was up 14 points in the quarter and financial business rose by 18 points, but the public sector dropped 4 points.

Unisys exited the quarter with a $5.3bn services backlog, which is utterly dwarfed by the one that IBM has, but which is key to the Unisys business just the same. Haugen said about $730m of this was scheduled to flip to revenue in the fourth quarter.

Things are going well enough for Unisys to retire $66m of debt early, which Haugen announced the company will do in the next quarter. Three years ago, Unisys was almost $750m under water even though it had nearly half a billion dollars in cash, and Coleman pushed the company to breakeven in the fourth quarter of this year.

The company now has $667.3m in cash and equivalents and $444.4m in long-term debt. So it is actually has $222.9m of nose above water. Oddly enough, none of this has helped the company's share price. It still only has a market capitalization of $825m as El Reg goes to press.

Unisys announced last week that it would pay out a $1.56 dividend on preferred shares in December. ®

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