Unisys Corporation

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Unisys Corporation

P.O. Box 500
Township Line and Union Meeting Roads
Blue Bell, Pennsylvania 19424-0000
U.S.A.
(215) 986-4011
Fax: (215) 986-6850

Public Company
Incorporated: 1886 as American Arithmometer Company
Employees: 60,300
Sales: $8.69 billion
Stock Exchanges: New York Midwest Pacific Cincinnati Amsterdam Antwerp Basel Brussels Geneva Lausanne London Zürich

Unisys Corporation, known as the Burroughs Corporation until a merger with Sperry Corporation in 1986, is one of the largest providers of computer systems, software, and related technologies in the world, serving some 60,000 organizations and businesses in more than 100 countries. Within the United States, a market that generates slightly less than half of the company’s revenue, Unisys ranks fourth in industry sales behind IBM, Hewlett-Packard, and Digital Equipment. The corporation’s principal product emphasis has been mainframes, peripherals, document-handling equipment, intelligent workstations, and customized solutions to a variety of business needs. Unisys is perhaps best known, though, as a government contractor, through the Paramax subsidiary, and as a leading processor of transactions for airlines, banks, and other telecommunications-oriented businesses.

Unisys originated in 1885, when William Seward Burroughs invented the first recording adding machine. Burroughs called his device an arithmometer and the next year he and three partners founded the American Arithmometer Company in St. Louis, Missouri. Creating a commercially viable version proved difficult; Burroughs was unable to patent a salable model until 1892. Once on the market though, the adding machine became a success—in 1897 Burroughs was awarded the Franklin Institute’s John Scott Medal in honor of his invention. Burroughs died of tuberculosis the next year, however, sadly before realizing much profit from his invention. The company, which moved to Detroit in 1905, was renamed the Burroughs Adding Machine Company in his memory.

During the early years of the twentieth century, Burroughs consolidated a position in the adding machine business by acquiring both Universal Adding Machine and Pike Adding Machine in 1908, and Moon-Hopkins Billing Machine in 1921. By 1914 the company offered 90 different types of data-processing machines which, with the help of interchangeable parts, could be modified into 600 different configurations. Accountants formed the core customer base, and in 1917 Burroughs increased courtship of those customers with the debut of a magazine devoted to accounting called Burroughs Clearing House.

By the 1920s Burroughs was an established mainstay of the office-machine industry and remained so for the next three decades, with adding machines still at the heart of the product line. All of that changed, however, as a result of J. Presper Eckert and John W. Mauchly’s invention of ENIAC, the first electronic computer, in 1946. At first the market for computers appeared to be limited to a handful of government agencies that used them for large-scale number crunching. The only companies to commit themselves to computer research and development were large electronics and office-machine firms for whom the computer was a natural extension. When the Defense Department awarded the design contract for the new SAGE early-warning computer system in 1952, Burroughs, IBM, RCA, Remington Rand, and Sylvania were all prime choices. IBM won, giving that company an advantage competitors have yet to overcome.

Burroughs did not immediately plunge wholeheartedly into computer technology, preferring, along with Sperry Rand’s UNIVAC unit, NCR, Control Data, and Honeywell, to keep up with IBM during the 1950s. At the end of the decade Burroughs’s reputation was still, in the words of a Time magazine correspondent, that of “a stodgy old-line adding machine maker.” Even so, in 1952 the company developed an add-on memory for Eckert and Mauchly’s ENIAC. The following year the company name was shortened to Burroughs Corporation, in recognition of its diversification. In 1956 Burroughs introduced its first commercial electronic computer and acquired ElectroData Corporation, a leading maker of high-speed computers. Burroughs also entered the field of automated office machines, introducing the Sensitronic electronic bank bookkeeping machine in 1958.

Burroughs entered the computer field during the tenure of John Coleman, whose last major act as president was to negotiate a partnership agreement between his company’s computer operations and those of RCA, which was also looking for a way to catch up to IBM through a pooling of financial resources. RCA approved the agreement in 1959, but Coleman died before he could sway Burroughs’s board of directors and the plan was never realized. Business historian Robert Sobel wrote that the Burroughs-RCA partnership might have produced “the best possible challenger for IBM.”

Coleman was succeeded by executive vice president Ray Eppert. Under Eppert, Burroughs expanded its place in the rapidly growing bank-automation market in 1960, as the company began selling magnetic inks and automatic check-sorting equipment. In 1961 the company introduced the B5000 computer, which was less expensive and simpler to operate than other commercial mainframes. Expansion and diversification during early years of the computer age led to a fourfold increase in sales between 1948 and 1960, from $94 million to $389 million. At the same time, however, increased research and development costs cut profit margins, a problem the company struggled with until the late 1960s.

Despite this surge in earnings, Burroughs remained among the smallest of IBM’s main competitors in the early 1960s. Although the B5000’s distinctive design had earned a solid following, Burroughs’s computer product line remained narrow and the company was still too dependent on accounting machines. Research and development costs continued hacking away at profit margins, leaving the company’s future clouded.

In 1964 Ray Macdonald became executive vice president and began overseeing the company’s day-to-day operations. With the help of several like-minded executives, he took control of Burroughs from Eppert and committed the company to a course of steady profit growth through cost cutting. Macdonald succeeded Eppert as chief executive officer in 1967. Burroughs’s financial performance continued improving and the company became a Wall Street favorite before the decade was out.

The Defense Department awarded Burroughs a contract in 1967 to build the Illiac IV supercomputer which had been designed by a team at the University of Illinois—a major coup for the company. The Illiac IV was 10 to 20 times faster than any existing supercomputer in 1972 and was delivered to NASA’s Ames Research Center in California. The sudden lag in research and development created by Macdonald’s policy of cutting costs also contributed to two significant technical failures around this time. The B8500 mainframe, which had been scheduled for delivery in 1967, had to be scrapped altogether in 1968, after Burroughs engineers realized they could not produce reliable components at a reasonable price. The B6500 was ridden with breakdowns caused by the development team’s strategy for bringing the project in on time and under budget—namely, cutting corners in the high-speed circuitry design and neglecting to test the completed machines properly before delivery.

An interesting aspect of Macdonald’s stewardship was his re-emphasis of accounting machines as an integral part of Burroughs’s product line. Foremost among his talents was a genius for salesmanship; the company won a considerable chunk of the high-speed accounting machines market from rival NCR. In 1974 Burroughs entered the facsimile equipment business, acquiring Graphic Services for $30 million. The next year the company paid $8.8 million for Redactron, a maker of automatic typewriters and computer-related equipment.

Ray Macdonald retired in 1977 and was replaced by Paul Mirabito, his hand-picked successor. During Mirabito’s brief tenure, the consequences of Macdonald’s fiscal policies began manifesting themselves in earnest. In 1979 IBM announced a powerful new generation of computer systems. Burroughs countered by announcing its own new series of systems. Unfortunately, although Burroughs’s design ideas were good, the company did not have the development or manufacturing resources to translate them into actual computers. Burroughs’s inability to deliver finished products resulted in an embarrassing stream of canceled orders. Years of salary cuts and other forms of budget-tightening had engendered low morale among field engineers and a reputation for poor service among clients. Customer complaints came to a head in 1981, when 129 Burroughs users sued the company over product unreliability and difficulty in getting their machines fixed.

Mirabito had retired in 1979 and was replaced by W. Michael Blumenthal, the former chairman of Bendix and secretary of treasury in the Carter administration—a move that surprised many industry observers. Blumenthal took over a company that was deceptively profitable, chalking up record sales of $2.8 billion in 1979. He immediately set about shaking up Burroughs’s corporate culture, firing veteran executives and replacing them with his own appointees, phasing out the adding machine and calculator businesses, implementing a plan to improve repair service, and discontinuing accounting practices that tended to inflate earnings. Blumenthal’s reforms did not come without cost, however; in July of 1980, the company reported its first drop in quarterly profits in 17 years.

Blumenthal concentrated on Burroughs’s computer business in an effort to secure the position of the largest of IBM’s U.S. competitors. In 1981 the company covered one weak spot by acquiring System Development Corporation, a software-development firm, for $9.6 million. Burroughs also procured Memorex that year, maker of disc drives and other data-storage equipment, for $85.2 million, despite Memorex’s shaky financial condition. These moves added $1 billion to the company’s annual sales.

Blumenthal eventually decided that economies of scale were necessary to compete with IBM. In 1985 Burroughs launched a $65-per-share takeover bid, worth $3.7 billion, for Sperry. Sperry had been a takeover candidate since holding unsuccessful merger talks with ITT in March of 1984. The Sperry board of directors and investors, from whom Burroughs hoped to obtain shares, balked at the offer, though, and the deal fell through. Burroughs came back with a $70-per-share bid, worth $4.1 billion, in May 1986, and a four-week battle ensued. Sperry executives, anxious to preserve the company’s independence, argued against selling out. The board put up a defense that included an $80-per-share stock buyback offer while casting about for a white knight. Sperry eventually agreed to a $76.50-per-share deal worth $4.8 billion—by far the largest merger in the history of the computer industry and one of the largest in U.S. corporate history. The resulting company was the second-largest computer firm in the nation, leapfrogging over Digital Equipment Corporation.

Sperry, which was founded in 1933, originally made aircraft instruments. In 1955 the manufacturer jumped into the computer business, merging with Remington Rand, which had acquired Eckert-Mauchly Corporation, a company founded by the developers of the ENIAC and the UNIVAC, in 1950. Sperry Rand quickly became one of the industry’s leading companies due to its technical prowess and by the 1960s had gained a reputation for wonderful products. At the same time Sperry had inherited a legacy of poor management and marketing from Remington Rand. By the time Burroughs showed interested, Sperry had profitable defense-electronics operations, but a struggling computer business.

Six months after the acquisition, the combined company adopted the name Unisys. The moniker was selected from suggestions submitted by Burroughs and Sperry employees and was conceived as a synthesis of the words “United Information Systems.” But the real work of fusing the two companies still remained. Over the next two years the Unisys work force was reduced by 20 percent—24,000 of the 121,000 positions were eliminated—while unwanted and redundant businesses were placed on the market in order to generate cash. In December 1986, Unisys sold Sperry Aerospace to Honeywell and later sold off Memorex’s marketing arm.

Meanwhile Unisys stepped up diversification of its product line. In 1987 Unisys obtained Timeplex, a high-tech communications equipment company, for $300 million, and Convergent Technologies, a maker of office workstations, for $351 million. By 1989 the company had begun to move into the small- and mid-sized computer market, adopting AT&T’s popular Unix operating system as the standard configuration for Unisys machines. In 1989 Unisys also began manufacturing its own personal computers for the first time.

Unisys was not entirely successful in the late 1980s, however. Despite strong earnings growth from the time of the Sperry deal through 1988, the company posted a loss of nearly $100 million in the first quarter of 1989. Management shake-ups in 1987 had resulted in the departure of two key executives—vice chairman Joseph Kroger, the former president of Sperry who commanded intense loyalty from former Sperry employees, and Paul G. Stern, a physicist whom Blumenthal had brought into the company from IBM and made president and chief operating officer in 1982. Sluggish sales, manufacturing cost overruns, and fierce price competition among the many companies using the Unix system all cut into revenues.

Unisys also found itself caught up in the Pentagon procurement scandal of 1988. Federal prosecutors brought charges against some Unisys executives—including former vice president Charles Gaines, who headed the Washington, D.C., office of one of the company’s defense units—with fraud, bribing Defense Department officials into yielding classified procurement documents, and making illegal campaign contributions to members of Congress; these activities allegedly occurred at Sperry prior to the merger. Unisys had already begun an internal investigation when the government made the accusations public. According to Paul Mann of Aviation Week & Space Technology, the company settled its part in the Operation III Wind court case in September 1991, pleading guilty to fraud and bribery and agreeing to pay a record of up to $190 million in damages, penalties, and fines. In the same article, James A. Unruh, appointed successor to Blumenthal, was quoted as saying, “we as a company must accept responsibility for the past actions of a few people, even though today we have a completely different management team and different shareholders.”

Unruh claimed in the company’s 1991 annual report that the settlement—extending through 1997—would have “minimal impact” on the company’s performance. His statement accorded with newfound optimism within and outside the corporation that the beleaguered giant would return to profitability. Successive net losses of $639 million in 1989, $436 million in 1990, and $1.39 billion in 1991 were offset by the news of year-end 1991 and initial 1992 quarterly gains of $80.5 and $48.3 million, respectively. “Analysts [were] estimating the company could earn about $285 million” for the full 1992 fiscal year, according to Electronic News.

In order to achieve this apparent turnabout amid a depressed global economy, Unisys exacted more drastic employee reductions, eliminating some 23,000 people from 1989 through 1991. At the end of 1991 the remaining Unisys workforce was roughly half the size of that at the time of the merger. Other major restructuring costs in 1991 led Unisys to take massive second quarter charges of $1.2 billion, directly contributing to overall unprofitability for the year. However, these measures were expected to reduce costs on an annual basis by approximately $800 million.

Also contributing to Unisys’s reinvigoration was the 1991 sale of the Timeplex subsidiary, responsible for only a small fraction of overall revenues, as well as the decision to withdraw from the public offering of Paramax, which despite a declining defense market, remained healthy and generated more than 20 percent of Unisys’s annual gross revenues.

Unisys’s stock became a top performer on the New York Stock Exchange from mid-1991 through mid-1992—bolstered by factors including the company reorganization and streamlining, concentration on high-volume markets, reduced inventories and operating expenses, and leading position in check-processing systems for financial institutions. The “We Make It Happen” company, known for high customer-service ratings, seemed as determined as ever to restore equally high financial rankings, regardless of the short-term sacrifices to be endured.

Principal Subsidiaries

Convergent, Inc.; Unisys Australia Limited; Unisys Belgium; Unisys Canada, Inc.; Unisys Deutschland GmbH (Germany); Unisys Electronica Ltda. (Brazil); Unisys Espana S.A. (Spain); Unisys Finance Corp.; Unisys France; Unisys Italia S.p.A. (Italy); Unisys Limited (U.K.); Unisys Nederland N.V. (Netherlands); Unisys (Schweiz) A.G. (Switzerland).