Unisys services sales down in Q1

ClearPath mainframes rise again

Services and server seller Unisys felt the pinch in revenues in the first quarter thanks to divestitures of business units and a decline in its services revenues, which has widened its losses.

Revenues fell by 6.9 per cent in Q1, to $998.3m, but a rebounding ClearPath mainframe market helped quadruple operating profits to $58.9m. Even with currency effects adding five points to revenue growth as overseas sales were brought back home and booked in US dollars, Unisys lost two points of revenue to the divestiture of businesses and added another five points of revenue decline on top of that thanks to sluggish services sales.

And hence, the company booked a net loss of $16.9m (excluding $5.3m in profits attributable to several divested businesses). The good news is that this is not as bad as the $24.4m loss it had in the year-ago quarter. The bad news is that Unisys is still not in the black.

Unisys booked nearly $35m in pre-tax foreign exchange losses - $20m from the devaluation of the bolivar in Venezuela, which put the squeeze on profits during the quarter. Unisys also used cash to repay the remaining $64.9m in March 2010 notes it owed to investors and over the past year has paid down nearly $200m in long-term debt. The company is sitting on a cash pile of $468.5m, but has $2.41bn in long-term debts.

In the first quarter, technology sales - meaning ClearPath mainframes, ES x64 boxes, storage and systems software - actually went up by 9.3 per cent to $126.9m. This was admittedly against a pretty awful first quarter last year, during the trough of the economic meltdown. But this is the second straight quarter of consecutive revenue growth for the ClearPath line, and that was in a quarter where Uncle Sam was cutting back on purchases at Unisys.

Within the technology group, enterprise server sales were up by 29 per cent, to $101.9m and specialized technology (custom gear Unisys builds on behalf of companies and governments) declined by 33 per cent, to $25m. Technology product gross margins were 52.2 per cent, up nearly 19 points compared to the year ago quarter, which is how you know recently refreshed ClearPath mainframes are selling.

The services business at Unisys took it on the chin in the first quarter, however. In a conference call with Wall Street analysts, Janet Haugen, chief financial officer at Unisys, said that outsourcing revenues were down two per cent to $390m, systems integration and consulting revenues were down 13 per cent to $295m, infrastructure services were off 12 per cent to $125m, and core maintenance services were off 21 per cent to $61m. Gross margins across all services products improved by 2.4 points to 18.2 per cent in the quarter.

There are indications that things are getting better on the services front. Haugen said that in the quarter, orders for new services (which will be booked in future quarters) were up by double digits, and that all service areas but infrastructure services saw growth. Systems integration/consulting and core maintenance services had order growth in the single digits, while outsourcing had double-digit order growth.

However, infrastructure services orders fell by the double digits in the first quarter. Haugen said that the company had "substantial order growth" for services in Europe and Latin America, but new business was down in the Asia/Pacific region and flat in the United States. Unisys closed the quarter with a $5.9bn backlog in services contracts, up $600m from a year ago. ®

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