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July 20, 2006
Unisys Corp., of Blue Bell, raised its target for job cuts to 5,500 - 1,900 more than the company had said in October - as it reported a wider second-quarter loss of $194.6 million, or 57 cents a share, yesterday.
In the second quarter of 2005, by comparison, the company posted a $27.1 million, or 8 cents a share, loss.
In eliminating the jobs, Unisys said it expected to rely more heavily on lower-paid workers in Asia and Eastern Europe.
Unisys, which sells computer servers and consulting services, has struggled for several years to define its core capabilities to customers and attain lasting profitability. One roughly comparable, albeit much larger competitor is International Business Machines Corp. IBM reported yesterday a second-quarter profit of $2.02 billion, or $1.30 a share, up from $1.83 billion, or $1.12 a share, in last year's second quarter.
In a conference call with financial analysts, Unisys president and chief executive officer Joseph W. McGrath braced investors for more bumpy quarters.
"We continue to look for 2006 overall to be a transitional year," he said.
He added that several strategic initiatives, including "aggressive and mandatory targets" for hiring in low-cost-of-labor countries and shifts in its technology offerings, should bring improved results in 2007 and beyond.
McGrath noted that the company garnered important contracts in the second quarter, including a five- to seven-year agreement to design and build a network for the Department of Homeland Security.
Investors reacted to the worse-than-expected earnings news by unloading Unisys shares - the stock closed at $5.18 yesterday, down 97 cents, or nearly 16 percent, in New York Stock Exchange trading.
Analysts polled by Thomson Financial had expected a loss of $33.9 million, or 7 cents a share.
Unisys expects to save $325 million a year as a result of the reduced head count, starting in 2007.
The layoffs, which will take place worldwide, will be 90 percent complete in late 2006, with the rest to follow through the first half of 2007, McGrath said. The positions represent about 15 percent of the Unisys workforce.
The second-quarter results include a pretax charge of $141.2 million to pay for the job cuts.
Revenue for the second quarter of 2006 declined 2 percent to $1.41 billion from $1.44 billion in the second quarter of 2005. Clients bought fewer of Unisys' ClearPath servers, a key product that management was counting on last year for an improved 2006.
A centerpiece of Unisys' recovery strategy is hiring workers in India, China and Eastern Europe, where workers accept a fraction of the pay that their Western peers command.
Unisys has 1,800 such "global-sourced" workers, and McGrath said the firm expected the number to reach 6,000 by 2008.
"We are not finished with head-count reduction," he added. An announcement is forthcoming about addressing facilities costs, McGrath said.
Besides the "global-sourcing" initiative, Unisys expects to get a much needed boost from a new server architecture, or platform, it has developed. The system, which will not be available until late 2007, will allow Linux, Microsoft Windows, and proprietary Unisys operating systems to work in concert on large Intel processor-based corporate computer networks.
A more standardized setup should cost less for Unisys and its clients, and in turn sell more servers, McGrath said.
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