ClearPath: Unisys' Shining Star?

Strong demand for its ClearPath mainframe platform helped boost Unisys' profits in Q2.

At this time last year, Unisys Corp. was in the midst of a rough stretch.

Sales of the company's ClearPath mainframe systems had flatlined, Unisys tallied a loss of nearly $12 million, and executives worked to temper expectations for the rest of the year.

One year later, it's the reverse: in Q2 this year, Unisys generated $921.3 million in revenue. Unisys' sales retrenched: the company generated $937 million in Q2 2011, which means that its year-over-year performance is off by just 2 percent.

In contrast to last year's numbers, however, Unisys generated almost $47 million in profit, thanks in part to a surge in demand for its ClearPath mainframe systems.

"Our technology business had a particularly strong quarter, growing revenue 12 percent on strong ClearPath sales," CEO J. Edward Coleman told investors during Unisys' Q2 earnings call. Technology revenue as a whole was up by 3 percent, year-over-year, according to Coleman.

As they've consistently done, Unisys officials argued that ClearPath sales need to be considered on an annual -- as opposed to just a quarterly -- basis.

"We continue to believe the best way to measure this business is on an annual basis, and our goal is to maintain stable technology revenue for the full year, most importantly in our flagship ClearPath platform," said Coleman, who reiterated this point at least twice during the call.

Coleman also sought to highlight Unisys' ongoing investment in ClearPath. He cited several domains -- including cloud computing -- in which Unisys is focusing its ClearPath efforts.

"[W]e've been working on an exciting future vision for ClearPath, including new features and delivery models that [open] up the market for this technology to new uses and new users," he said, later in the briefing. Although the ClearPath platform's fortunes can vary -- sometimes significantly -- from quarter to quarter, Coleman said ClearPath's strong performance in Q2 wasn't the result of a single large deal or contract. "I think it's fair to characterize this as just a good quarter for ClearPath across many clients around the world," he responded.

In fact, ClearPath was the shining star of Unisys' nuts-and-bolts technology division.

According to Unisys CFO Janet Brutschea Haugen, for example, although ClearPath revenues increased year-over-year, "sales of other technology ... [including] third-party equipment, declined by $10 million." Brutschea Haugen said Unisys is shooting for "stable" revenue growth for ClearPath. "Our annual goal continues to be to maintain stable technology revenue, most importantly in our ... ClearPath platform. Benefiting from higher ClearPath sales, we reported a technology gross margin of 63.4 percent, up over 14 percentage points from [2011]."

Federal Fail

Unisys posted its ClearPath turnaround in spite of extremely soft demand in the Federal sector, where -- thanks both to its services arm and its technology lineage -- it enjoys a strong presence.

"Revenue declined 2 percent but grew 3 percent in constant currency despite a 20 percent revenue decline in our U.S. Federal business where market conditions continue to be challenging," Coleman explained, citing continuing pressure on Federal agencies to cut costs; a growing federal interest in cloud as a potential service delivery platform; and a concomitant, government-wide trend in favor of smaller contract awards.

Later in the call, he returned to some of these issues. "We are repositioning our Federal Systems business to take advantage of these trends," said Coleman. "In the area of cloud, for example, we continue to see growth opportunities in helping federal agencies move to cloud based e-mail and collaboration environments." He cited -- among other examples -- work that Unisys has done for the General Services Administration and the Department of Energy's Idaho National Laboratory.

What's more, Coleman indicated, the Internal Revenue Service (IRS) has tapped Unisys to help manage and integrate its move to the cloud. "Unisys has just been awarded a task order by the Internal Revenue Service to provide an innovative, private cloud-based solution to manage the IRS' mission-critical information assets," he related. "Our solution will allow the IRS to take advantage of storage capacity on an as-needed basis."

Unisys has always been heavily represented in the public sector, but Coleman highlighted its success in growing its system integrations revenue outside of government, too.

"In project-based systems integration, our revenue has been impacted by softness in our U.S. Federal business," he said. "Outside the U.S. Federal business, however, we've grown our systems integration revenue 16 percent year-over-year in the first half of 2012."

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