While Unisys services revenues decline again year-to-year in Q3 2016, large contract wins create annuity streams for the future, says Matthew O’Blenes, research analyst at TBR.
Unisys reported its eighth consecutive services revenue decline of 8.4 percent year-to-year in Q3 2016, driven by weakness in Cloud & Infrastructure Services in both Commercial and Financial sectors as well as declines in Application Services within the Public Sector. At the corporate level, revenues fell 7.6 percent year-to-year; however, total contract value grew 22 percent year-to-year indicating a bright future for the company. In efforts to secure a large amount of deal wins, selling, growth and administrative rose 200 basis points year-to-year to 17.6 percent. Gross margin for services declined 230 basis points, while operating margin declined 370 basis points.
A series of deal wins announced in Q3 2016 will offer Unisys the building blocks to achieve revenue growth in its services business which accounts for 88 percent of total corporate revenue. We anticipate revenue growth in Unisys’ government segment due to contract wins with the U.S. Customs and Border Protection, and by the Philippine Statistics Authority. In addition, securing contract wins with Prudential Plc. and TravelSky will help expand Uniysy’s financial services and commercial segment revenues respectively.
A deeper security portfolio positions Unisys to effectively compete for clients’ cybersecurity spending.
Unisys continues to develop its security capabilities as the company pursues opportunities with clients in industries, such as financial services, travel and transportation, government and life sciences to protect their data and operations from cybercrime. In October, Unisys launched Digital Investigator, a system for crime investigation that enables law enforcement agencies to share information across applications and agency boundaries.
Unisys released a new Appointment Manager solution for financial services clients that are integrated with the Unisys Stealth micro-segmentation security software and available on the Microsoft Azure public cloud platform. Unisys also announced security services for ServiceNow clients to prevent and resolve security incidents through better integration of security and IT operations.
TBR expects Unisys to use its established position, especially in the U.S. federal sector, which accounted for 20.4 percent of total revenue in Q3 2016, to expand its security-related work. According to TBR’s Public Sector IT Services Benchmark, vendors with robust cybersecurity portfolios including managed services layered with higher-end consulting or advanced threat protection services will benefit from increased spend to secure sensitive networks, protect valuable data and monitor and undermine global enemies perpetrating cyber-attacks on the U.S.
Unisys makes deal wins in cloud and security to help drive government revenues
Unisys’ pursuit of profitable deals with high margins slowed the company’s growth in the government segment, which comprises of public sector and U.S. federal and collectively made up 47.5 percent of total revenue in Q3 2016. However, the company continues to win deals with clients, notably in the U.S. around cloud with the Office of the Comptroller of the Currency and security with the U.S. Customs and Border Protection.
While recent deals have yet to begin generating revenue, such deals indicate the company’s portfolio expansion around next-generation solutions is becoming attractive for its clients. According to TBR’s Public Sector IT Services Benchmark, vendors that have invested early and heavily in differentiated capabilities related to analytics, cyber and systems engineering, position as government clients’ preferred partners for digital transformation initiatives. TBR expects Unisys to be among the core contenders in the government segment pursuing enterprise IT-type engagements as well as specialized services around cloud, security and analytics.
