Unisys Builds on State, Local Strengths

The struggling integrator seeks to leverage its government customers

Unisys Corp., the struggling computer services giant, is leveraging its expansive state and local government customer base as it attempts to complete an ambitious turnaround strategy.

According to industry analysts, Unisys' state and local government division has been one of the leading vendors in its market for more than 40 years, and that gives it a huge advantage in today's competitive state and local marketplace.

As a whole, the company has not been so lucky. It began restructuring four years ago and last year lost $624.6 million. In the first quarter of 1996, there was a net income loss of $13.4 million, compared with a $44.6 million profit in the preceding year, company reports said. Four years ago Unisys was primarily a mainframe and defense electronics company, but as the popularity of client/server computing surged, the company's profits took a tumble. As a result, the computer integrator last year sold its defense business and created an ambitious plan to become a giant integrator of client/server solutions and services.

Being part of any company going through a restructuring is bound to affect employees, at least in a general way. There is a really good group running Unisys' state and local division, and they have increased their state and local presence, said Bill Loller, an analyst with G2 Research Inc., Mountain View, Calif., a market research and consulting firm.

Unisys has set up a public sector division within its Information Services Group to meet the needs of state and local governments. In 1995, U.S. state and local government contracts brought ISG $300 million in revenue. Total ISG revenues were $2 billion. Lately, annual state and local revenue growth for Unisys has ranged between 22 percent and 25 percent.

Compared to total ISG revenues, $300 million doesn't seem like a lot, but it's enough for G2 to rank Unisys as the third largest state and local vendor. The top spot belongs to IBM's Integrated Systems Solutions Corp., and the second spot is filled by Electronic Data Systems Corp.

The company's base of installed legacy systems automatically makes it a contender on some accounts that may no longer fall into its target markets, according to a report by G2 Research. For example, Unisys does not target county assessment as a market, but has installed mainframes in many assessment offices. When those offices need new hardware or services, Unisys has an edge, according to G2's analysis.

Unisys has targeted three niches within state and local governments that align with the company's core competencies, said David Calabro, Unisys vice president and general manager for the Public Sector Information Services Group. Justice and public safety is the largest niche. Unisys is a recognized leader in developing computer-aided dispatch systems for this market. The second largest niche is social services, where the company's specialties include child welfare services. The third niche is tax and revenue. This is an area Unisys is leveraging into a growing services business.

As states become more value conscious and procure off-the-shelf solutions, vendors will increasingly be making money on services delivered, Calabro said.

Major customers for Unisys include California, Michigan, Florida, New York and Ohio. Even with the tight fiscal constraints, there will always be opportunities for growth. Millennium consulting is one of the largest opportunities in the state and local market, said Calabro.

The trend to outsourcing and privatizing government functions is another growth area for Unisys. Currently, Unisys is more heavily involved with information technology outsourcing, however the company wants to develop a larger presence in process re-engineering and outsourcing because of the greater opportunities in that market, said Calabro. But Unisys will only seek those process outsourcing contracts in areas where it has developed an expertise.

A third growth area, according to Calabro, is the trend toward electronic government. That will require installing a new system or reconfiguring existing architecture and will present many opportunities for integrators.

State and local officials have a history by which to judge Unisys' commitment to the marketplace, said Calabro. They recognize that focus is as much a key to quality as its size," he said.

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