The rebound in spending on two upgraded mainframe lines and aggressive costcutting helped swing Unisys to a profit in the final quarter of 2009, despite ongoing revenue declines.
Overall sales for Unisys in Q4 were down 5.5 per cent to $1.21bn, and services revenues fell by 9 per cent to just over $1bn. But thanks to a big bump in ClearPath mainframe sales at the end of the year, the technology business at Unisys rose sharply by 18.7 per cent to $192.4m. That extra hardware dough helped Unisys swing to a $114.5m profit, compared to a loss of $58m in the year-ago quarter.
In the quarter, all of the Unisys business units experienced a revenue decline except Enterprise Servers, which saw a 29 per cent jump to $169m. The ClearPath line of mainframes were upgraded in two phases - first in the high-end in October 2008 and then entry machines in May 2009 - and customers were finally in a financial position to start buying again in the last two quarters, according to Unisys chief financial officer Janet Haugen, who spoke to Wall Street analysts ahead of the market open.
Haugen said that the company expected a "secular decline" in the mainframe business over the long haul, as has been the trend for decades. But her chief executive officer Ed Coleman was quick to add that he "didn't want to presume a decline in ClearPath," with Unisys setting a self-fulfilling prophecy.
He said that Unisys had two of the best platforms, highly available platforms in the IT racket, which were both "modern" and "open" and supported languages like Java and standard middleware. He added that Unisys was focused on getting its nearly 1,800 mainframe shops to modernize their applications. "It's not a bad business to be in," he said.
For all of 2009, the Enterprise Servers division at Unisys had a 23 per cent decline in sales, to $564m, more or less mirroring the overall decline in the market. While ClearPath sales were down in the low single digits for the year, according to Haugen, they picked up in the second half thanks to normal seasonality and to Unisys refinancing its long-term debt with a certain amount of difficulty earlier in the year. Those difficulties gave some mainframe shops pause, and they waited until the ordeal was over.
The Enterprise Servers division doesn't just sell the two flavours of ClearPath mainframes, of course - the ClearPath Dorado line comes from the Sperry half of Unisys and runs OS 2200, while the ClearPath Libra machines come from Burroughs and runs MCP.
Unisys also makes its own ES7000 Xeon and Itanium servers, as well as a new ES7000 line co-developed with Japanese server maker NEC. Unisys also rebadges Opteron servers from the former Sun Microsystems (now Oracle) and rack and blade servers from Dell. Neither Haugen nor Coleman talked about how well or poorly these x64 machines did in the quarter.
In Q4, the outsourcing business at Unisys declined by 4 per cent, to $456m, and strategic outsourcing and consulting had a steeper 14 per cent decline, to $342m. Infrastructure services accounted for $144m in sales, down 10 per cent, and core maintenance on Unisys and other vendors' products brought in $75m, down 12 per cent.
Coleman said that operating margins in the services business had doubled to 6.2 per cent, but were still below the company's target of between 8 and 10 per cent. The random basket of products and services called specialized technology had $24m in sales in Q4, down 25 per cent.
For the full year, Unisys had $1.8bn in outsourcing revenues (down 10 per cent), $1.36bn in strategic outsourcing and consulting sales (down 9 per cent), $564m in infrastructure services sales (down 23 per cent), $309m in core maintenance revenues (down 17 per cent), and $96m in specialized technology sales (down 15 per cent). Total revenues for the year added up to $4.6bn, a decline of 12.1 per cent compared to last year. Net income was $189.3m, compared to a $130.1m loss in 2008.
While Cisco Systems is fired up about the IT recovery that is apparently booming in 2010, Unisys is less sanguine. "We're expecting another tough year ahead, especially in the first half, because of the tight spending environment," Coleman said in the call. That's why Unisys will focus on selling off non-core businesses, cutting costs, and managing its cash pile, which stacked up to $648m as 2009 came to a close.
As El Reg previously reported in January, Unisys is selling off its healthcare transaction processing business, which generates around $110m in sales and is profitable. Yesterday the company announced that it was also selling its cheque and cash automation equipment business and its related supplies and maintenance business to Marlin Equity Partners.
In a tip of the hat to the forerunners of Unisys, Marlin Equity will name this new company Burroughs Payment Systems. The financial details of the sale were not announced, but Haugen said in the call that the revenue stream from this business was not material and that it was running more or less at breakeven. ®