UNISYS AIMS FOR THE TOP OF THE TREE
Will Weinbach's new push erase its second-tier status?
The faces around him said it all. When Lawrence A. Weinbach took the top job at ailing Unisys Corp. in the fall of 1997, he quickly noticed that no one in the halls of the Blue Bell (Pa.) computer company smiled. In fact, many employees didn't even look him in the eye. And when Weinbach went out to visit big customers, most asked the same uneasy question: ''Is Unisys viable?'' Says Weinbach: ''Nobody thought this company had a future.''
These days, there's little worry about Unisys' survival. One year after his arrival, Weinbach, 58, has slashed the company's staggering debt load by nearly $1 billion, to a more manageable $1.3 billion. That has helped the company turn in strong earnings all year long. On Oct. 15, Unisys announced that profits nearly doubled in the third quarter, to $96 million on $1.8 billion in sales. And the stock has more than doubled, to 25 7/8 since Weinbach's arrival.
Not bad for the first year on the job. But Weinbach's next year will be an even bigger test. He wants to build the company's services business--expected to hit $5 billion this year--into a high-octane profit engine, focusing on areas where Unisys has proven expertise--such as financial services and telecommunications (table). The trouble is, Weinbach faces a delicate balancing act: He has to rev up the services side as he copes with the expected decline of the company's traditional mainframe business, which still generates about 60% of the company's earnings. ''The challenge is to do this and be perceived as a top-tier [services] player,'' says Merrill Lynch & Co. analyst Steven M. Milunovich. ''They are still viewed as a second-tier computer company.'' Concedes Weinbach: ''Are we there yet? No. But we are on our way.''
REVENUE RAISER. Certainly Weinbach is not used to playing in the second tier. An accountant by training, he previously had a 36-year career at accounting and consulting giant Andersen Worldwide. Chief executive for his last eight years there, he upped revenues from $3.4 billion to $11.3 billion. But with Andersen's mandatory retirement age of 62 five years away, Weinbach decided to start a second career. ''The challenge of coming into a turnaround and seeing if we could get [Unisys] to come alive was very enticing,'' he says.
At Unisys, Weinbach quickly moved to impose financial discipline on the company's erratic information services business. That unit focuses on a variety of services including the design and installation of sophisticated document imaging, voice-messaging, or customer- information systems for companies like Norwest Financial, the consumer-finance business of Norwest Corp. Those businesses, together with the company's networking and maintenance-service group, are expected to generate 67% of Unisys' $7.2 billion in annual revenues this year. But the service unit contributes just 39% of the company's operating income. One reason: Unisys bid so aggressively to win some contracts that a number of them, including one to manage the health insurance system for Florida state employees, were money losers.
Indeed, the information service group racked up losses of $400 million in 1995 and 1996 alone. Now, before a bid is made, the proposal gets a stringent internal review by executives who don't receive commissions on the deal. And Weinbach says Unisys won't be chasing huge outsourcing deals, in part because profits on such projects are slim.
Where Weinbach is scrambling after new business is in midsize service deals that can help the company build up its Internet expertise. A Unisys package called Cool ICE, for example, is the software glue that helps customers create electronic commerce applications that link their databases to Web sites. Although coming off a small customer base, sales are up 300% this year. Unisys also is hawking another program, FBA Navigator, a system for managing customer information at retail banks that allows banks to send personally tailored marketing pitches to customers over the Web.
Products like Navigator are part of another scheme to drive service revenue. Weinbach calls it repeatable solutions. These are predesigned systems that are developed to meet the needs of industries such as publishing, telecommunications, and transportation, which can then be tailored--using Unisys experts--to fit the specific requirements of individual customers and any number of hardware platforms.
Unisys, for instance, offers daily newspapers a system called Hermes. Developed in Europe in the 1970s, Hermes manages the flow of everything from archived stories and photos to the newspaper's daily content and layout. It has caught fire in the last three years, with a total of 100 newspapers now using the system--33 signed up in 1998 alone--including Rupert Murdoch's News International PLC, publisher of London's The Sun. ''Their key was they were successful in Europe with customers that were happy with them,'' says Bill Hack, publishing systems director at Philadelphia Newspapers Inc., which is rolling out Hermes at its Philadelphia Inquirer and Philadelphia Daily News operations. So far, the midsize-service effort is paying off. In the first nine months of this year, total service revenue rose 17%, to $3.5 billion, generating operating income of $221 million, compared with just $86 million in the year-earlier period. And more than 25% of orders in services this year are from new clients.
While Weinbach says services are the future of Unisys, he isn't turning his back on hardware. Instead, he's zeroing in on high-end servers and mainframes. Earlier this year, he outsourced the production of low-end servers and personal computers to Hewlett-Packard Co. That's allowing the company to target much of its $300 million research and development budget on a new generation of high-end servers. The new machines--the first line will be ready by mid-1999--will run Microsoft Corp.'s Windows NT operating system as well as other operating systems and use new-generation Intel Corp. chips.
MICRO-BET. That bet isn't without risks. Right now NT is the hot ticket among corporate users, but it isn't viewed as reliable enough to handle the high volume, mission-critical functions typically run on mainframes. Unisys is betting that, by partnering with Microsoft, the two companies can boost NT to handle those tasks for industries such as financial services. If the new hardware delivers, Unisys will be set to exploit the hot market for NT software and services. ''The risk is that making NT industrial-strength takes longer and is more difficult than they currently project,'' says analyst Charles C. Burns of technology researcher Giga Information Group Inc.
None of Weinbach's ambitious plans will flourish, however, if he isn't able to overhaul the company's stodgy old mainframe image. That holds Unisys back in everything from recruiting to being considered a serious candidate for top- flight contracts. A new ad campaign--costing $20 million in the fourth quarter alone--is aimed at blowing away that image. With its showcasing of hip young professionals who are so obsessed with their jobs that their heads are actually computer screens, the ads are a break from Unisys' traditional pitch.
Weinbach also is raising the bar on training. He's planning to roll out ''Unisys University,'' a technical and management training program, in January of 1999 to keep employees up on technical issues and build a pool of experts. He reinstated a matching contribution from the company in employee 401(k) programs--cut during lean years--and started a program in which employees can buy Unisys stock at a discount. Now, employee turnover is down from 14% in 1996 to about 9% in the first quarter of this year. ''We were concerned about morale and support at the company,'' says George F. Thomas, director of information systems at New York Clearing House Assn., a big Unisys mainframe customer. ''Now you can see a turnaround in attitude.''
There's still a lot of room for improvement, though. One senior executive at the company says some infighting continues between the hardware and services teams on issues like financial resources and manpower. Weinbach knows those units need to coordinate sales and service efforts better, so earlier this year he created one sales group to handle the company's 200 largest accounts. ''We are trying to change the culture of this company,'' Weinbach says. If he can do that, Unisys may be able to focus on prospering instead of survival.
How come I want DELL to buy Unisys? Why? WHY? WHY?
Greg |
