Unisys Fights to Reap Profits Again : Computers: After a staggering loss last year, manufacturer has slashed jobs and closed plants. Fourth quarter may see an end to red ink.
All’s not happy here on Jolly Road, home of the nation’s third-largest computer company.
Unisys Corp., the behemoth created by Burroughs Corp.’s 1986 purchase of Sperry Corp., is struggling mightily to make money once again after reporting a staggering $639 million loss last year.
Since last October, it has slashed more than 8,000 jobs, closed plants and refocused its mishmash of inherited product lines.
Still, the red ink keeps flowing. In July, Unisys reported a $45.1-million loss in the year’s first half after paying preferred stock dividends. Two weeks ago, the company’s stock price plunged to a 52-week low after several industry analysts reduced their earnings forecasts.
The cutbacks, losses and a Pentagon bribery scandal at the Unisys defense division are said to have taken their toll on morale among the company’s 78,000 employees.
But the pay-back from the belt-tightening should appear later this year, analysts say, when they expect Unisys to report a profit in the fourth quarter.
“Once those plants are closed and the benefits start flowing through, it’s virtually impossible to build a scenario where they’re not in the black,” said Rick Martin, an analyst at Prudential-Bache Securities Inc.
The situation wasn’t always bleak. Most observers agree that Burroughs’ $4.8-billion merger with Sperry initially was a success. The consolidation of the two old-line computer companies led to a streamlining that cut costs and improved profits.
In a burst of optimism, W. Michael Blumenthal, the Burroughs chairman who engineered the merger, launched the renamed company on an ambitious plan to double annual sales to $20 billion by 1993. He predicted Unisys would rival International Business Machines Corp., the world’s largest computer maker.
But the scheme of the former U.S. Treasury secretary flopped. The computer industry’s breakneck growth slowed to a trot in the late 1980s and major corporations began to move away from large mainframe computers--Unisys’ mainstay product--to smaller models.
That left Unisys with warehouses full of unsold computers and unneeded production lines, analysts say.
“You don’t take two slow-growing companies and turn them into one fast-growing company,” Martin said.
With profits strangled, Unisys was forced to borrow up to $1.5 billion to pay shareholder dividends, analysts say, pumping up its debt to a high of $4.1 billion last year.
Unisys also saw its important government business drop last year when its defense unit was barred from bidding on contracts for three months as part of the “Ill Winds” probe of Pentagon fraud. Several Unisys executives pleaded guilty to bribery and Unisys still faces a possible fine.
To help fix the problems, Blumental in October announced the sweeping restructuring, taking a $231-million charge against earnings to pay for it. In April, he relinquished day-to-day control and his chief executive title to James A. Unruh, a longtime Burroughs executive.
In a recent interview, Unruh spoke frankly about the company’s troubles.
“We had a very difficult 1989. It seemed like whatever could go wrong did go wrong,” he said at the company’s sprawling headquarters complex in this Philadelphia suburb.
Unruh admitted Unisys misjudged the U.S. computer industry slowdown but noted the company’s plight wasn’t unique.
Digital Equipment Corp., the world’s second-largest computer company, reported its first-ever quarterly loss earlier this year and has eliminated thousands of jobs. IBM has also been cutting costs.
The industry is undergoing a painful transition as large computers are losing favor to cheaper--and less profitable--mid-size and desktop models that often are linked in networks.
In addition, companies increasingly want computers that use industry-standard operating systems, the base layer of software that controls internal computer functions. With the move to these “open” systems, which Unisys has joined, profits have been squeezed as computers become more like interchangeable commodities.
Unruh said the cutbacks have been painful both to him and employees.
“Closing plants is not a pleasant process. Reducing employment is not a pleasant process at all,” said the soft-spoken North Dakota native, whose team-oriented management style is said to differ markedly from that of the more demonstrative Blumenthal.
Unisys, which traces its history to the first successful electronic computer, the giant ENIAC machine built at the University of Pennsylvania in the mid-1940s, has reorganized its operations around customer lines of business instead of the size of its computers.
For example, it has targeted the airline, health care, insurance, banking and phone companies, among others, as areas where it can offer specialized software and services, along with Unisys computers.
The strategy is a contrast from past practice, Unruh said, when Unisys would tell its customers, “ ‘We’ve got the next bigger, faster box for you. Here it is. Good luck.’ Because that’s where we stopped.”
By becoming an expert in particular businesses, and providing specialized software, Unisys can differentiate itself from competitors who also are promoting industry-standard computers, Unruh said.
Sensing that hooking computers in a network was a growing trend, Unisys made two major acquisitions in 1988: Timeplex Inc., a maker of networking equipment, which it acquired in a $300-million stock swap, and Convergent Technologies Inc., a maker of networked desktop computers, which it bought for $350 million.
