Stonehenge,
This might help your thought process.
NW
Subj: Compaq-Digital Deal May Help Unisys
Date: 98-02-08 14:09:15 EST
Compaq-Digital Deal May Help Unisys
.c The Associated Press
By STEVE FARR
NEW YORK (AP) - With Unisys Corp. finally poised to bring its lingering debt under control, you might think its chief executive would be worried about the sudden appearance of a huge new rival.
But Lawrence A. Weinbach insists that Unisys could benefit down the road from Compaq Computer Co.'s decision to buy Digital Electronics Corp.
The deal announced last month would make Compaq, the largest maker of personal computers, the No. 2 seller of a range of business and consumer computers, behind only International Business Machines Corp.
It also strengthens Compaq's presence in the lucrative business of helping firms set up, run and service their computer networks - the same area where Unisys hopes to see most of its future growth.
That could be trouble for Unisys as it expands beyond selling mainframe machines, which perform heavy-duty computing from processing huge numbers of transactions to tracking inventory information.
But the two companies share a similar vision: Persuading companies to switch to smaller computers that run on Windows NT, a business version of Microsoft Corp.'s popular Windows 95 operating software. Unisys recently began aggressively pushing large Windows ''servers,'' which link together computers in networks to emulate mainframes.
''We're banking that the future is'' with Windows NT, Weinbach said in a telephone interview. ''The fact that Compaq has come out and said the same thing solidifies our position.''
Analysts agree, although more cautiously.
The Compaq-Digital deal ''definitely helps (Unisys) because (NT) is the platform that everyone wants,'' said Jim Corridore, an analyst with S&P Equity Group. ''By the same token, that's the platform that Compaq will be competing with them in.''
Some speculate that Unisys, by paring its debt, is sprucing up for a possible sale of its hardware business to a larger rival, similar to Digital's move. But Weinbach, who started at Unisys last September, insists he's not interested in selling because he ''joined to build the company.''
He also says he's not worried about the competition, figuring that the bigger the market for NT services, the more likely his company will get a slice of it. Besides, Weinbach says, Compaq ''will have its hands full for at least another year'' weaving together the two companies.
Unisys made $4.2 billion from services last year - 63 percent of its revenues. That was well behind industry leader IBM, with $22.9 billion, and third-place Digital, at $6.2 billion, according to market researcher International Data Corp.
Analysts doubt Unisys, with a relatively small but loyal customer base that includes airlines and Federal Reserve banks, would feel much immediate impact from Compaq's move. In the long term, though, Unisys expects its service business to grow as more companies switch to servers.
Most powerful corporate computers are made by IBM, Hewlett-Packard Co. or Sun Microsystems Inc. and run on Unix operating software. NT servers are cheaper, but until last year the software wasn't considered powerful enough for big jobs.
''What's driving consolidation is the Intel-Microsoft standards and the future of the Unisys business is on those standards,'' said Peter Labe, of Buckingham Research Group.
Twelve years ago, it was Unisys, headquartered in suburban Philadelphia, that challenged IBM. But the 1986 merger of Sperry Corp. and Burroughs Corp. was doomed by incompatible technologies and management's failure to choose between them.
Instead, Unisys tried to keep both, missed out on the PC boom and ran up $2.3 billion in debt trying to compete with IBM's mainframe business. Employment fell from 98,000 to 33,600 today.
Weinbach was hired a month after he retired as chief executive of Anderson Worldwide. There, he oversaw the expansion of the parent of accounting firm Arthur Andersen & Co. into a global consulting firm.
At Unisys, Weinbach promised to do the opposite - narrow its focus and pare $1 billion in debt by 2000.
''I want us to be a mile deep and an inch wide,'' he said.
He is almost there, having paid off $814 million. Once Weinbach reaches his target, Unisys will not have to make another payment until 2003, he said.
To cap its makeover, Unisys laid its past to rest in the fourth quarter by writing off $900 million in ''good will'' remaining from relationships with mainframe clients.
Investors have noticed. The company's stock, which sank under $7 per share a year ago, was trading at about $18 on Friday. Sales totaled $6.7 billion in 1997, the second straight year of growth. And First Call predicts Unisys earnings this year of about 94 cents a share, more than double the 46 cents earned last year before a $1.1 billion restructuring charge.
AP-NY-02-08-98 1405EST |
