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July 23, 1991

UNISYS TAKES $1,200m CHARGE, CUTS 10,000 MORE JOBS; A, 2200 LINES SURVIVE, Vs TO GO

By CBR Staff Writer

Unisys Corp stunned the market by taking charges totalling $1,200m with its second quarter figures to leave it with a loss for the quarter of $1,300m on declining shares; it is looking to cut its 71,000 workforce by another 10,000 people, about 14%. The company says that it has completed its previously announced re-evaluation of its business plan for 1991 and beyond, and the bad news, for a company with such a hodge-podge of competing and incompatible product lines each crying out for more research, development and support dollars, is that after a detailed review of every product, market segment, organisation and subsidiary, there will be no change in strategic direction. But according to chief executive James Unruh, there will be fundamental change in implementation to meet the economic reality produced by continuing unprecedented structural change in the computer industry. The company intends to streamline the product line in conformance with the Unisys Integrated Information Environment architecture; reduce the number of market segments the company serves directly; sharply focus resources only where the company can add value and differentiation; and aggressively seek technology and marketing alliances to complement in-house strengths on the most cost-efficient basis – so why did it allow IBM Corp to get to Wang Laboratories Inc first? Special charges of $1,200m for the quarter just ended are all in the commercial computer business. The charges include $925m for restructuring to cover a planned workforce reduction of about 10,000; product and market segment pruning and plant and excess facilities consolidation. The charges also include $275m to cover a write down of goodwill and write-off of its remaining investment in Memorex Telex International NV preferred stock. The loss before the charges for the quarter was $100.2m. Unisys expects to reduce costs by $800m on an annual basis by December 31 1992 and the impact of the actions on operational cash flow is expected to be neutral in 1991 and turn positive in the first quarter of 1992. By year-end 1992, an annual favourable change in cash flow of approximately $750m is expected. More than 60% of the planned reduction in personnel is expected to be completed this year, the rest by next June. Reductions will concentrate on staff at corporate and business unit headquarters, and staff associated with de-emphasised products and market segments; layers of management will also be reduced across all functions. It says that lenders have been supportive in amending the $1,250m revolving credit agreement to accommodate the charge related to implementation of the turnaround programme and related actions. The amended agreement lowers the net worth requirement for the company from $3,500m to about $2,000m. If Unisys needs to increase its borrowings under the line of credit beyond the cur rently outstanding $1,050m, it will be required to provide security to its lenders on terms to be agreed. Additional amendment terms include a restriction on dividends and prepayment of debt, limitation on capital expenditures and minimum income requirements. The four main areas of activity will now be financial services, airlines, communications, and the public sector.

V Series

That implies that manufacturing and energy are in particular being de-emphasised. It will also continue to serve some other limited industry-specific areas where the geographical customer concentration and Unisys capability make it profitable to support and grow those markets. Highlighting the dangerous fallacy at the heart of the company, the product line is being focused on 2200 and A Series Information Hub mainframes – no company can profitably support two competing mainframe lines, yet half Unisys’ banking customers in the UK use Burroughs kit, half use Sperry – Intel iAPX-86-based servers and workstations, and Unisys cheque and office imaging systems. That means that the System 80 and the Burroughs V series mainframes are on the way out, as are non-Intel-based Unix machines. The company says that hardware and softwa

re engineering programmes are in place to protect customer investments in deemphasised product lines by providing a clear path to follow over time in conformance with the Unisys architecture. It hopes the drastic action will bring it back to profit later this year.

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