Unisys plans job cuts in wake of earnings drop

Unisys Corp. announced Thursday plans to cut its workforce and de-emphasize some low-margin businesses and products in the wake of a big drop-off in its earnings for the third quarter.

The Blue Bell, Pa.-based computer maker and professional services firm reported a third-quarter profit of US$42.9 million, down 69 per cent from earnings of $138.4 million in the same three months last year. Revenue declined nine per cent to $1.7 billion during the quarter, compared with revenue of $1.9 billion in the same period last year.

The poor showing in the three months ended Sept. 30 follows lower-than-expected financial results in the second quarter. Services revenue remained weak in the third quarter, and sales of the company’s hardware declined year-to-year, said Lawrence Weinbach, chairman and CEO of Unisys.

Unisys said the results were in line with its financial outlook for the quarter. But the struggling company still detailed a series of planned changes following what Weinbach described in yesterday’s announcement as “an exhaustive review of our services and technology businesses.”

During a conference call after the third-quarter results were released, Weinbach said Unisys trimmed 300 jobs during the last three months via a hiring freeze. The freeze will remain in effect for the rest of this year, and Weinbach said the company plans to continue reducing its internal cost structure, starting with an early retirement program that will be offered to about 1,500 U.S. employees.

Unisys also plans to focus its resources through moves such as cutting its portfolio of industry-specific technology offerings from 30 to 15 and reducing its investment in unspecified “low-margin commodity products.” In addition, the company said its outsourcing unit would more aggressively pursue joint ventures and other new ways of doing business in an effort to increase revenue growth.

The restructuring actions are expected to result in a fourth-quarter charge of about $200 million, according to Weinbach. But he said the moves are meant to make Unisys “a more focused, profitable company.” More restructuring steps are likely within the next six to eight weeks and will be announced, “as they are completed,” he added.

During the conference call, Weinbach touted “signs of recovery,” such as an expectation that a number of federal contracts will be awarded to Unisys this quarter. He also stressed the importance of the company’s high-end ES7000 server line, which can pool together as many as 32 Intel Corp. processors and is targeted as a Windows-based rival to Unix servers.

The ES7000 is the only system currently available that can take full advantage of the 32-processor scalability supported by Microsoft Corp.’s new high-end Windows 2000 Datacenter Server operating system. The machine is being resold by vendors such as Hewlett-Packard Co. and Compaq Computer Corp., making Unisys a key player in Microsoft’s effort to leap into the highest reaches of corporate data centers.

In a recent report on Unisys, David Friedlander, an analyst at Giga Information Group Inc. in Cambridge, Mass., suggested that the company rely on other vendors to supply it with low-end servers supporting fewer than eight processors so it can concentrate on the ES7000 line and e-business initiatives.

Friedlander praised Unisys’ server development efforts, but he said the company lacks the marketing clout that rival vendors have with users. It also was hurt by Microsoft’s slow delivery of Windows 2000, Friedlander added, noting that Unisys had put “most of its eggs … in one basket” by focusing almost exclusively on Windows-based systems.