Thursday, 29 October 2009

Unisys’ pulse beats stronger

(By Anthony Miller – Thursday 29th October 2009 8:30am). It seems rather counterintuitive, but the biggest margins in Unisys’ business last quarter were in Technology (hardware), where operating margins almost doubled to 21.2%, mainly due to ‘a stronger mix of high-end enterprise servers’. Technology comprised just 13% of Unisys $1.16b Q3 revenues, but every bit of extra profit helps. The core Services business saw margins more than double, from 3.1% to 7.7%, which in aggregate pushed Unisys’ group margins up from 2.9% to 10.2%. That’s a result!

The revenue story was equally interesting. Technology revenues declined 3% yoy (constant currency) whereas Services revenues fell 8%. Outsourcing, now 40% of Unisys’ group revenues, declined 10%, SI/Consulting (28% of group) fell 9%, and Infrastructure services fell 27% (12% of group). Even core maintenance revenues fell 14% (7% of group). However, management reported that services orders are up substantially, driven by outsourcing contract renewals. Indeed, we noted yesterday a £300m+ BPO deal for Unisys UK (see Unisys checks in again at UK banks).

This is now Unisys’ second consecutive quarter in net profit, but no one is calling the recovery job anywhere near done. But it’s hard to see where Unisys fits in the global IT services ‘new world order’ – the answer probably isn’t as an independent player. Unisys ranked as a Top 20 supplier to the UK SITS market last year and is heavily embedded in the UK public sector (see UK Public Sector 2010: Threats and opportunities) as well as in financial services, so its fortunes – or failures – will affect the shape and size of the UK market.

Now that Oracle is a hardware vendor, maybe they should also take Unisys under its wing. It’s barely $1b in market cap, though has about the same amount in long-term debt – small change for Larry! Of course, the most natural ‘homes’ for Unisys would be with the major systems vendors, IBM and HP, but they didn’t seem to be interested when Unisys was trading at under $5 a share earlier in the year, so I doubt they’ll make a play now the shares are over $25. But who knows what will happen in this crazy world of M&A?

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