After ups and downs, Unisys gets a $681M boost

Unisys Corp. got some good news from the Commonwealth of Pennsylvania this week: a $681 million contract to consolidate and manage seven data centers for the state in a remotely accessible cloud.

For the Blue Bell technology company with a long history of innovation, it was a welcome shot in the arm.

Since the arrival in fall 2008 of J. Edward Coleman as chairman and CEO, Unisys has stabilized the business, repaid debt, slashed costs, and returned to a growth trajectory.

After a strong fourth quarter in December, investors were expecting a great start to 2014. But it didn't happen. Unisys posted a loss, and the stock nose-dived.

"The technology numbers came in light. It was a lousy quarter," said analyst James Friedman, of Susquehanna International Group, based in Bala Cynwyd. "They only had $71 million in technology sales. We thought they would do almost $90 million."

Unisys shares fell from nearly $35 on Feb. 27 to $22 in mid-May.

"Part of the reason may be they have new products, and it sometimes takes a while for new products, especially these kinds of products, to sell," Friedman said.

Unisys - No. 49 on the Philly50 - will report second-quarter earnings results Tuesday.

The $681 million contract is for seven years, with the option for three one-year renewals. It will consolidate seven data operations, including for Pennsylvania's Departments of Health, Public Welfare, Revenue, and Labor and Industry, and the State Police.

"To our knowledge, we are the first state to fully move our data-center operations to a cloud environment managed by a third party," said Dan Egan, spokesman for the Office of Administration in Harrisburg.

"Pennsylvania is perceived to be breaking new ground," Friedman said. "The cloud is not that widely adopted, especially in the government sector. If Unisys does a good job with this contract, there's a good chance other states will use them as well."

Ned Davis, consulting analyst with William Smith & Co. in New York, said: "John Coleman and his team have done a very good job of stabilizing the business, taking the cash flow - after funding the pension requirements - and refinancing the debt, building up a cash reserve."

Unisys' pension-funding obligation for retired workers is hefty: $232 million this year, $220 million in 2015, and $184 million in 2016, Davis said.

"It's just a very tough environment. There's price competition and no end of strong companies," Davis said.

Unisys has divested noncore businesses and has aggressively pursued new technology. The company announced plans to spend $50 million to $70 million on new technology development this year.

Unisys employs 900 in the Philadelphia area, and 23,000 worldwide. Its large customers include U.S. Customs and Border Protection, Metropolitan Police Service of London, United Airlines, TravelSky of China, and the Australian Department of Immigration and Citizenship.