Weinbach Returns Unisys to Stardom
By Bob Starzynski
Six months after Lawrence Weinbach arrived at Unisys Corp., the $6.6 billion company is on a fast track reminiscent of years ago.
Weinbach has helped the information and computer services company erase $800 million in debt, turn cash flow from operations positive for the first time in about 10 years, and boost its stock price to a level not seen since 1989.
Last week, Unisys announced that in the first quarter the company tripled its common share earnings on slightly higher revenue than in the previous year. First-quarter revenue rose from $1.5 billion to $1.6 billion.
"The best way to get on top of things was to deal with financial questions first," Weinbach told Washington Technology last week. "This has given us tremendous credibility on Wall Street."
The Blue Bell, Pa.-based company with over 32,000 employees has spent the past 10 years trying to diversify from its mainframe computer building roots. With large customers - from the Internal Revenue Service to the Nasdaq Stock Market to United Airlines and Lufthansa - the company has transitioned gradually into more of a services business.
Which made Weinbach a perfect match. The 58-year-old Unisys chairman, president and chief executive officer served nine years as the chief executive of Andersen Worldwide, the parent of accounting giant Arthur Andersen and international powerhouse Andersen Consulting.
With mandatory retirement looming in four years at Andersen, Weinbach opted for the challenge of turning around Unisys, which had $2.3 billion in debt and a stock price that had been in a slump for years.
"I looked closely at Unisys and concluded that it had very good potential but needed to do some things quickly," Weinbach said in an interview.
Debt was the most significant sore spot for Weinbach, with interest alone costing Unisys more than $200 million a year.
On his first day at Unisys last September, Weinbach pledged to wipe off $1 billion of the company's debt from the balance sheet by 2000. Three months later, Weinbach had converted and paid off more than half of that amount.
Since then, more than $800 million has been filtered out. As for the remaining $200 million, Weinbach said: "Believe me. It will be taken care of by September 1999."
As Weinbach continued to deliver on his promises, Wall Street rewarded his efforts. From a low of $5.75 a share last April, Unisys' stock price has continued to climb, closing at $21.31 April 17.
"They were so mismanaged before," said James Kissane, an analyst with Bear, Stearns & Co. in New York. "Now, they are just doing great."
Over the past several months, most securities analysts have upgraded their rating on Unisys to either a "buy" or "strong buy."
As Weinbach continues to deliver impressive financial results to shareholders, he is also looking at possible acquisitions for Unisys, although he said he will not finance any such deals with the company's $600 million of cash. Analysts speculated the company may be seeking services companies to help counteract the loss of business from exiting ventures, such as personal computer manufacturing.
"The company's fourth quarter report was excellent; in fact, we are hard pressed to think of anything wrong," wrote Peter Labe, an analyst with Buckingham Research Group of New York, in January.
When Unisys' management problems began a decade ago, the company cut back its work force by almost two-thirds. That restructuring, under Weinbach's predecessor James Unruh, saved the company from bankruptcy, Labe said.
But new problems arose. Kissane said the company wanted to sign up major contracts to build revenue, despite how little money it netted from those contracts. Several contracts worth hundreds of millions of dollars were not profitable at all for the company, he said.
When Unruh announced his intention to step down from running Unisys last spring, investors began to rally up the stock price.
"By the end of Unruh's tenure, the wheels were already in motion," said Richard Jacobs, an analyst with Janney Montgomery Scott in New York. "Add to that Weinbach's strength and experience with the services business. Even though the stock has been a terrific performer this year, there is still some place to go."
|Unisys Corp. Quarterly Results|
First quarter ended March 31
| ||1998 ||1997|
|Revenue ||$1.6 billion ||$1.5 billion |
|Earnings on common shares ||$62.7 million ||$19.3 million |
Jacobs initiated coverage of Unisys last month with a "buy" recommendation.
Now, according to Weinbach, the days of growing revenue for revenue's sake are gone. In December, Unisys took a $1.1 billion write-off to exit PC manufacturing and other businesses.
PCs were giving the company no competitive advantage against successful manufacturers such as Compaq, Dell and Gateway 2000, which focus exclusively on PCs. Weinbach opted out of the business.
Instead, Unisys now resells Hewlett-Packard personal computers when customers have need.
But reselling hardware does not offer Unisys a handsome return, either.
In the past year, "Our gross profit margins have decreased 30 percent," Weinbach said, "in large part because [computer] hardware has become a commodity.
"We're not good in commodities," he said. "We shouldn't have been in there. And one of the benefits of being new is that it was unemotional for me to make the decision that we would be getting out of the commodity business and outsource it."
For Weinbach, the best future returns at Unisys will come from consulting work that does not involve hardware sales. "As long as we continue to acquire hardware, margins on the hardware will get squeezed."
Strength in the high-end server market and the services business should help counter lower margins on hardware, analysts agree. But is there a lot of money to be made by Unisys in the federal market, where customers most often need a mix of hardware and services?
"A lot of people say you can't make money in the government market," Weinbach said. "I reject that. Our federal systems division is very strong, and I expect it will continue to grow well and grow profitably."
Last June, the federal division launched Select IT, an online, one-stop shop for open-market government buyers. Purchases on the service fall outside broad purchasing agreements and the General Services Administration schedule.