By Stephen Phillips Unisys Corp trumped market expectation with third-quarter profits yesterday. However, lower than expected revenue growth and a warning of sluggish revenue going forward sent shares in the number five computer services group into a 37% tailspin. Blue Bell, Pennsylvania-based Unisys posted net income of $136.5m or 43 cents per diluted share for […]
By Stephen Phillips
Unisys Corp trumped market expectation with third-quarter profits yesterday. However, lower than expected revenue growth and a warning of sluggish revenue going forward sent shares in the number five computer services group into a 37% tailspin.
Blue Bell, Pennsylvania-based Unisys posted net income of $136.5m or 43 cents per diluted share for the three months to September 30 up 75% on $67.2m, or 25 cents a share, for the same period last year. These figures include a tax benefit of $22m, or 7 cents a share, and a charge of $12m or 4 cents a share, from buying back so-called preferred stock carrying a high interest onus.
On a pro-forma basis Unisys raked in 40 cents a share compared to the analyst consensus projection, collated by First Call, of 36 cents a share. The firm upgraded previously announced earnings targets for fiscal year 1999 ending in December to between $1.50 and $1.55 from a $1.45 to $1.50 range.
Revenue of $1.87bn for the quarters was up 6.7% on the year-ago but this was below the 8% growth analysts had been looking for. And the firm said for the full-year it now expected only to post revenue growth of 4%, from a previous target in the 8% to 10% range. The news sent shares in Unisys tumbling almost 16 points yesterday to close at $26.56.
Chief executive officer Larry Weinbach said the revenue growth was disappointing. It is his first setback since taking the helm over two years ago when former mainframe and defense electronics manufacturer, Unisys was starting to gear up its services business. He attributed the sluggishness to shortfalls spread evenly between the firm’s networking and enterprise-level Windows NT divisions.
Sales from networking services contracts came in well below expectations, Weinbach said. He said that the firm suffered during the quarter from a deferment in the award of an unspecified major US federal government project it is bidding for, as well as from funding irregularities on another US government contract it is working on. Unisys has also been hit by antitrust delays in British Telecommunications Plc’s Concert venture with AT&T Corp, which Unisys is supplying networking services to.
Revenue from Unisys NT Services Unit was lower than expected due to persistent customer doubts about the scalability and robustness of the operating system, Weinbach said. He added that the revenue shortfall was also the outcome of Unisys’ policy of spurning contracts which offer major revenue opportunities but slim profit margins. Weinbach said undercutting by competitors had cost the firm several deals in the last quarter but that it was willing to walk away from business if it doesn’t contribute to the bottom line.
He told reporters and company watchers yesterday that he did not see Unisys going head to head with industry titans like Electronic Data Systems, IBM Global Services and Computer Sciences for contracts in the $1bn-plus bracket. He said it would focus on the mid-market, typified by its $500m IT services contract with the state of Pennsylvania, which offers higher margins.
Weinbach said the firm would announce a realignment, including a more dedicated approach to seizing lucrative e-business, spanning internet and e-commerce services, later this quarter. The realignment, the fruit of seven months of consultation with customers, will include reconfiguring business units along vertical industry lines and increasing cross-selling of e-business services. But Weinbach conceded the firm was late to it [e-business]. He said the recent resignations of Gerald Gagliari, president of Global Customer Services, and Lawrence Russell, president, Information Services, were part of normal transition to a new business plan. Both were seeking careers elsewhere, he said.
The company also used the results announcement to trumpet its reduced debt burden, slashed below $1bn from $2.3bn two year ago. It said the purchase of $160m of preferred stock would lop $125m off its annual interest bill. á