New Unisys CEO tightens the belt

Layoffs and other cost-cutting moves

Ed Coleman, who took the helm at struggling server and services vendor Unisys in October, has made his first big moves in getting the company aligned to the tougher realities the IT market is facing thanks to the turbulent economy.

Unisys is eliminating 1,300 employees from its 29,000-strong workforce, a little more than 4 per cent of its payroll. These layoffs have already begun, Unisys said, and will continue into 2009. To curb costs, Unisys said it would eliminate pay rises for the remaining employees in most of its markets and regions, and would reduce unspecified third-party expenses and consolidating offices and factories, too. Unisys added that it would suspend contributions to its 401(k) retirement plans for its U.S.-based employees, which accounted for about $50m a year.

Added together, the changes that Unisys made will reduce expenses by about $225m a year. To cover the costs of the layoffs and facilities consolidations, Unisys will book a restructuring charge of $80m to $85m and will burn about $70m to $75m in cash to cover the charges.

A month ago, MMI Investments, which owned 26.3 million Unisys shares, or a little more than 7 per cent of the company, said it would sell up to 9 million of those shares. At the end of November, as its shares were hammered after MMI had sold 6 million shares, Unisys said it was trying to raise $660m from the sale of debt securities, stock, warrants, and other instruments, adding to its previous registration with the SEC to sell $440m in mixed securities.

This incoming dough is intended to be used to refinance debts or make acquisitions, but if Unisys is smart, it is just trying to get its hands on cash while it can.

In the wake of the layoff announcement, Unisys shares rose Tuesday by 41.5 per cent to a mere 75 cents a pop, giving the company a market capitalization of only $192m. Unisys hit a low this year of 38 cents a share (on November 20) and is well below its 52-week high of $5.17 a share, hit after Christmas last year and giving the company a market cap of $1.3bn. Several times in its history, Unisys shares were trading at ten times these levels, if you can believe it.

As previously reported, in the third quarter technology sales at Unisys fell by 8.7 per cent to $160.3m and services sales dropped by 5.4 per cent to $1.15bn. Those declines pushed Unisys into the red to the tune of $34.7m, or 10 cents a share, worse than the $31m loss Unisys posted in the same quarter last year.

Back in early November, when these results came out, Unisys said it anticipated that ClearPath mainframe sales would be "down significantly" in Q4. Server sales actually rose by 6 per cent in Q3, bolstered by strong mainframe sales - as was much the case at mainframe rival, IBM.

As the third quarter ended, Unisys had $494m in cash and can now afford to buy itself from Wall Street and go private. This might be the smartest thing that Coleman, as chairman and chief executive officer, could do for the long-term health of Unisys. Then the company could make long-term plans and get off the 13-week profit cycle of a public company.

It will be interesting to see if the Unisys board does it. If they do, it could start a whole new trend. ®