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CEO leads Unisys turnaround

Services giant Unisys is continuing on a turnaround that two years ago seemed virtually impossible, making it a potential takeover target and an example for beleaguered Compaq.

Services giant Unisys is continuing on a turnaround that two years ago seemed virtually impossible, making it a potential takeover target and an example for beleaguered Compaq.

The reversal in part, according to analysts, can be attributed to Larry Weinbach, who took over as chief executive two years ago.

Like a tanker taking on water and adrift without a rudder, Unisys appeared too large, too inflexible, and too much in debt to right itself. But Weinbach shed $1.2 billion in debt and turned manufacturing of its PCs over to Hewlett-Packard and storage devices to EMC and Data General. By August 2, Unisys will have eliminated about $1.4 billion in preferred stock, saving around $100 million a year in overhead. In addition, Unisys began to bid more selectively on large projects.

The results are impressive. Unisys beat by 5 cents the second-quarter predictions of 33 cents a share. The services company earned 38 cents a share on income of $119.7 million, up from $90.1 million, or 24 cents a share, a year earlier. Success has in turn made it a takeover target.

"There are several vendors in the market that have unique attributes in the enterprise market that could be valuable to some other players," said Tony Iams, server analyst with D.H. Brown Associates.

Weinbach's name is increasingly mentioned in chat rooms and bar rooms as a good candidate to take over Compaq, which ousted its CEO in April due to weak performance. Weinbach's success could, at the least, be a lesson for Compaq's new chief as he seeks to turn the company around, analysts said.

Weinbach wouldn't comment on Compaq's plight or CEO search, but he proudly stated Unisys' turnaround had only just begun.

CNET News.com: What are some of the most significant changes you made in your tenure at Unisys?
Weinbach: We have gone through this transformation of the company, [resulting in] a much tighter focus, a harder focus on what we're after.

Before I got here, we were going after every RFP [request for proposal] that came into the company, whether we had a chance or not or whether we had the capability or not. What we've done is create a very strong focus. If we're not good at something, we don't have the capability, we don't try and compete until we have our act together. What we've done is reduce the number of RFPs, focus on the ones where we have core competence for, and you can see from the results the revenue growth has moved up dramatically.

Q: What has been the result of your increased focus on services?
A: In the second quarter, revenue growth for services was 12 percent. If you knock out proprietary maintenance, it was 15 percent. If you take away currency impact, it was 18 percent. So the services business has been very robust. The decision to move into services and in effect be a services company with a technology arm, strategically was the right decision. And I say that now looking back. At the time when you're making these broad decisions, and looking forward, you're never quite sure.

Q: But you still develop and manufacture servers. What kind of breakdown do you eventually see between services and technology?
A: Over the next couple of years we'll get to a point where services is about 75 percent of our business and technology about 25 percent. The reason for that: The technology business after we get through the next couple of years and our new products come out on stream, will be growing somewhere in the 6 to 8 percent range. But without being in the commodity business, we don't think we can get into double digits, nor do we want to get into the commodity business because we can't earn money on it. If you look at the services business, we should be able to generate twice the growth that we'll get out of the technology business.

Q: What are some of the areas where you expect to see services growth, especially considering the high-tech employee shortage?
A: If you look at the marketplace a couple of factors are critical. If you look at IT [information technology] today, the value add is in services. You can buy hardware--I'm not saying all hardware is a commodity--but a box is a box. It's really the application, the systems integration, and the service that make it work.

The competitiveness of the global marketplace almost ensures companies need the technology. They can't do it on their own. With the shortage of people with specialized skills required in short periods of time, they tend to go to a third party who can bring that to the table. We're at the right space at this time with a series of skills that are relevant to the marketplace.

Q: You still have a strong technology business, particularly with "big-iron" servers, but are pushing into the NT market. Why?
The big-iron stuff is our forte. Scalability, availability, interoperability, that's Unisys. You start looking at the eight-processor server and the capacity of those servers then you start moving up to 16- and 32-processors, and I'm talking about an Intel environment and NT, this is what we see is the future, because it's a lot less to run that than a Unix environment or a proprietary environment.

Q: Does IBM's buying Sequent also make you a more attractive takeover target?
A: I've said repeatedly, the company's goal is to build the company and try to acquire, not be acquired. But at the same, I'm very realistic. I have a fiduciary responsibility to our shareholders, and if someone came after us we would have to deal with it. We're not looking for it.