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Unisys CEO: Challenges Have Been Somewhat 'Self-Inflicted'

CEO Peter Altabef said a bloated cost structure and lack of vertical integration have caused Unisys to struggle.

A bloated cost structure and lack of vertical integration have caused Unisys to struggle more than the competition, according to CEO Peter Altabef.

"Honestly, I think that a good amount of the company's challenges to date have been to some extent self-inflicted, or at least inward-focused," said Altabef, who started as chief executive in January 2015, in Thursday's quarterly earnings call. "Some of this [struggle] is playing catch-up to where we need to be competitively."

Unisys’s 6 percent decline in quarterly sales after factoring out changes in foreign currency exchange rates was a continuation of the revenue and margin deterioration the company has experienced for many years, Altabef said.

[Related: Unisys Reports Lower Revenue, Predicts Slow Turnaround]

But the Blue Bell, Pa.-based company should be "turning the corner" in 2016 as gross margins are expected to increase from 5.8 percent to somewhere between 7 percent and 8 percent. Altabef said that will enable Unisys, No. 19 on the CRN Solution Provider 500, to possibly improve sales in 2017 without having to sacrifice profitability.

"Until we have the cost structure in place, until we've got the right go-to-market and we can sell the right offerings, more empty calories aren't going to help us," Altabef said.

Since joining Unisys, Altabef has created distinct vertical practices around the company’s commercial, financial services, U.S. government and public sector businesses, and brought in thought leaders from the outside to run each unit. Existing Unisys employees were assigned to the practices during the fall and early winter, Altabef said, and the final practice leader will start at Unisys next week.

"These segments and sectors didn't exist last year, so we created them," Altabef said. "We expect that global leadership will assist greatly with those new logos and the renewals."

Unisys also boosted the expected savings from its cost-reduction plan announced in April 2015 from $200 million annually to $230 million annually, which is slated to be realized in full starting in 2017. The company said it planned to cut 8 percent of its workforce -- or 1,840 employees -- as part of the restructuring.

"We are making progress," Altabef said.

Unisys saw year-over-year revenue for its fourth quarter, ended Dec. 31, fall 6 percent on a constant currency basis, to $790 million. This fell short of the Wall Street consensus of $801.6 million, according to Seeking Alpha.

Non-GAAP net income fared better, though, improving by 28.3 percent to $79.3 million, or $1.58 per share. That crushed analysts' estimates for earnings of $1.06 per share.

Unisys stock remained unchanged in after-hours trading Thursday at $8.91 per share. Earnings were released after the market closed.

Services revenue grew for the fourth consecutive quarter, rising 2 percent on a constant currency basis to $649.1 million. Application services revenue grew 17 percent on a constant currency basis, thanks to additional customs and government security work, while cloud and infrastructure services fell 4 percent on a constant currency basis because of challenges in the United States and Canada.

But technology revenue plummeted 30 percent on a constant currency basis to $140.8 million because of reduced software license renewals and lower third-party product sales.

For 2016, Unisys expects sales to decline between 2.9 percent and 6.3 percent on a constant currency basis to between $2.78 billion and $2.88 billion. Services revenue is expected to come in at between $2.43 billion and $2.51 billion, while technology revenue is expected to land between $345 million and $365 million.

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