Unisys Reboots, Energized by Tech Services, Not Hardware

Few jobs are tougher than reviving a technology company that’s stumbled, because technology itself changes so fast that it’s nearly impossible to catch up again with more nimble rivals.

But Unisys Corp. is proving it can be done.

Yes, Unisys, that maker of large-scale computers that was given up for dead in the early 1990s as a hopelessly out-of-date box builder. Under the direction of Chief Executive Lawrence Weinbach, who took the helm in 1997, Unisys shifted its focus to services over hardware and has made a dramatic comeback.

“A lot of people had written off Unisys,” Weinbach said. “Some are still confounded, but they look at us today as a real competitor.”

The Blue Bell, Pa.-based company’s earnings and revenue are growing faster than expected, its long-term debt has been slashed by more than $1 billion, operating costs are down and morale is up. Accordingly, the performance of Unisys stock--which sold for a paltry $2 a share in 1991--has been stellar.

The shares have soared more than fivefold since early 1997, which is better than the gains registered by the shares of high-tech giants Microsoft Corp. and International Business Machines Corp. In just the last 12 months the stock has doubled, closing Friday at $40.81 in New York Stock Exchange composite trading. And the company’s overall market value, which stood at only $1 billion when Weinbach arrived, has vaulted to nearly $12 billion today.

Last month Unisys posted a 33% surge in second-quarter profit, on a 9% gain in revenue, that surpassed Wall Street’s forecasts. Weinbach also boosted his outlook for Unisys’ full-year earnings by a dime, to between $1.45 and $1.50 a share.

“The results are really incredible,” said Martin Ressinger, an analyst with Duff & Phelps Credit Rating Co. in Chicago. The company, he added, “had been a doormat for over a decade.”

Unisys not only shifted to services, it decided to focus on serving familiar industries where it profitably excels. Among other things, that strategy helps Unisys avoid having to spend massive sums--which it doesn’t have anyway--to keep up with the latest technology changes in order to survive.

And the shift has staying power, said William Milton, an analyst with Brown Bros. Harriman in New York. “Certainly this company can grow its revenue by a good 8% to 10% a year . . . and earnings should grow faster than revenue,” he said.

Unisys was created by the 1986 merger of Burroughs Corp. and Sperry Corp., two old-line makers of mainframe computers, or what are now called high-end servers. But the merger never flourished, and Unisys nearly buckled under the strain of a debt-heavy balance sheet and trying to reconcile its antecedents’ different computer designs and employee cultures.

The company went through several overhauls but continued to founder. Unisys’ stock price drifted lower for years. Then it hired Weinbach, 59, a former head of the management and consulting firm Andersen Worldwide who was looking for a new challenge.

He got it. “I didn’t know a whole lot about Unisys” other than that it made computers, Weinbach recalled, but after doing research he came up with a four-part plan: Work on Unisys’ reputation, customer base and employees and, finally, come up with a long-term strategy.

Why reputation first? “I became convinced that people did not want to buy from a company if they didn’t think it was going to survive,” he said. To change their views, Weinbach on his first day announced he was going to chop $1 billion from Unisys’ $2-billion-plus debt load over the next two years.

Then he pulled out his checkbook and bought $1 million of Unisys stock, “to show that I believed this company could be successful. I haven’t sold a share.”

He also traveled the globe to see employees and boost morale. “People had lost confidence in the company and, frankly, in themselves,” he said. He also restored Unisys’ matching contribution to its workers’ 401(k) retirement plan.

All well and good, but did Unisys still have something people wanted to buy? Unisys knew its powerful high-end servers still had value in the marketplace, and Weinbach farmed out production of its personal computers to redirect resources to its server line. But he also decided Unisys could never survive--especially in its lousy financial shape at the time--as primarily a builder of machines, no matter what their size.

“The value-added in the marketplace is services, and consequently if we wanted to be successful, [we] had to take our talent more into services,” he said.

The shift worked, and now Unisys gets 75% of its revenue from services, which basically amounts to running clients’ complex computer systems and developing data processing systems for them.

And that’s where Weinbach’s “repeatable solutions” come in. Unisys has a long history of developing systems for banks, government agencies, retailers, newspaper publishers and airlines, among other types of clients, so it pitches that experience to win business.

Because Unisys can never be all things to all customers--its Internet presence, for instance, is modest--it can profitably exploit its niche, analysts said. The company also specializes in running Microsoft’s fast-growing Windows NT operating system.

Indeed, Weinbach estimates that about 75% of the software programs for these “repeatable” services is already written and proven, which helps Unisys promise potential buyers that it can get their systems up and running faster and with less risk and cost to them.

“All you have to do is modify that 75% to fit within the context of the company” that’s buying it, he said.

Its strategy of selling repeatable solutions also saves Unisys the cost of designing completely new systems. “There’s no more growth [at Unisys] for growth’s sake,” said Brown Bros.’ Milton. “It’s profitable growth, and there appears to be plenty of business around.”

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Plugging Away

Once given up for dead, computer maker Unisys Corp. has rebounded since the company and its new management began emphasizing services over hardware, slashing debt and boosting earnings. Quarterly net income, in millions:

2nd quarter 1999: $111 million

*Excluding $1.1 billion of restructuring charges

Source: Unisys Corp.