Unisys Corporation

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Unisys Corporation

Post Office Box 500
Blue Bell, Pennsylvania 19424
U.S.A.
(215)986-4011
Fax: (215) 986-2312

Public Company
Incorporated: 1886 as American Arithmometer Company
Employees: 80,000
Sales: $10.10 billion
Stock Exchanges: New York Midwest Pacific Cincinnati Amsterdam Antwerp Basel Brussels Geneva Lausanne London Zurich

Unisys Corporation, which was known as Burroughs Corporation until it merged with Sperry Corporation in 1986, is the second-largest computer company in the United States. Mainframe computers constitute the core of its product line, and in recent years it has begun to make smaller computers as well. Unisys is also the nation’s 15th-largest defense contractor, running a sizable military-electronics business. The company has all but phased out the accounting machines which were its mainstay until the computer age.

Unisys can trace its origin to 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 Saint Louis, Missouri, to market it. Creating a commercially viable version proved difficult, and it was not until 1892 that Burroughs was able to patent a salable model. Once on the market, the adding machine became a success, and in 1897 Burroughs was awarded the Franklin Institute’s John Scott Medal in honor of his invention. He died of tuberculosis the next year, before realizing much profit from his invention.

The company was renamed the Burroughs Adding Machine Company in his memory in 1905 and moved its headquarters to Detroit, Michigan. During the early years of the new century, Burroughs consolidated its position in the adding machine business. It acquired 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. The core of its customer base was accountants, and in 1917 Burroughs stepped up its courtship of those customers with the debut of a magazine devoted to accountancy called Burroughs Clearing House.

By the 1920s Burroughs had established itself as a mainstay of the office-machine industry. It remained so for the next three decades, with adding machines still at the heart of its product line. All of that changed 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 its new SAGE early-warning computer system in 1952, it had Burroughs, IBM, RCA, Remington Rand, and Sylvania to choose from. It picked IBM, giving that company an advantage that its competitors have yet to overcome.

Burroughs did not plunge wholeheartedly into computer technology at first, although it, with Sperry Rand’s UNIVAC unit, NCR, Control Data, and Honeywell strove to keep up with IBM during the 1950s. At the end of the decade its reputation was still, in the words of a Time magazine correspondant, that of “a stodgy old-line adding machine maker.” Even so, in 1952 it developed an add-on memory for Eckert and Mauchly’s ENIAC. In 1953 the company shortened its name 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. It also entered the field of automated office machines, introducing its Sensitronic electronic bank bookkeeping machine in 1958.

Burroughs entered the computer field during the tenure of President 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 has written 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 when it began selling magnetic inks and automatic check-sorting equipment. In 1961 the company introduced its B5000 computer, which it said 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. Despite the fact that the B5000 had won a following with its distinctive design, Burroughs’s computer product line remained narrow and the company was still too dependent on accounting machines. Research-and-development costs still hacked away at profit margins, and the company’s future was clouded.

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

Burroughs scored a major coup in 1967 when the Defense Department awarded it the contract to build the Illiac IV supercomputer, which had been designed by a team at the University of Illinois. The Illiac IV was 10 to 20 times faster than any existing supercomputer and was delivered to NASA’s Ames Research Center in California in 1972. The sudden lag in research and development created by Macdonald’s policy of cutting costs also contributed to two significant technical failures at about 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 plagued by breakdowns because the development team, in order to bring the project in on time and under budget, had cut corners in designing its high-speed circuits and had not tested 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, and the company’s efforts to market its high-speed accounting machines won a considerable chunk of the market from rival NCR. In 1974 Burroughs entered the facsimile-equipment business when it acquired 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. It was during Mirabito’s brief tenure that the consequences of Macdonald’s fiscal policies began to manifest 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 its design ideas were good, the company did not have the development or manufacturing resources to translate them into actual computers. Its inability to deliver finished products resulted in an embarrassing stream of canceled orders. Years of salary cuts and other forms of budget-tightening had also engendered low morale among field engineers and a reputation for poor service. 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 retired in 1979 and was replaced by W. Michael Blumenthal, the former chairman of Bendix and treasury secretary in the Carter administration. The move came as a surprise to 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 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 of its weak spots when it acquired System Development Corporation, a software-development firm, for $9.6 million. Burroughs also acquired Memorex, a maker of disc drives and other data-storage equipment, that year 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 1984. Its board of directors and investors, from whom Burroughs hoped to acquire shares, balked at the offer 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 and the board put up a defense that included an $80-per-share stock buyback offer and casting about for a white knight. Sperry eventually agreed to a $76.50-per-share deal worth $4.8 billion. It was by far the largest merger in the history of the computer industry and one of the largest in U.S. corporate history. Combined, the new 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 it jumped into the computer business when it merged with Remington Rand, which had in its turn acquired Eckert-Mauchly Corporation, the 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. By the 1960s it had acquired a reputation for wonderful products but dreadful management and marketing, a legacy it inherited from Remington Rand. At the time of its acquisition by Burroughs, Sperry had profitable defense-electronics operations but a struggling computer business.

Six months after the acquisition, the combined company announced that it would adopt the name Unisys. It was selected from suggestions submitted by Burroughs and Sperry employees, and was conceived as a condensation of the words “United Information Systems.” But the work of rationalizing the two companies still remained. Over the next two years Unisys cut its work force by 20%, shedding 24,000 of its 121,000 employees, and sold unwanted and redundant businesses to generate cash. In December 1986 it sold Sperry Aerospace to Honeywell, and it later sold off Memorex’s marketing arm.

At the same time, Unisys diversified its product line. In 1987 it acquired 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 and had adopted AT&T’s popular Unix operating system as the standard configuration for its machines. In 1989 Unisys began manufacturing its own personal computers for the first time in its history.

In the late 1980s Unisys was not entirely successful, 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 1989 when federal prosecutors charged former Vice President Charles Gaines, who headed the Washington, D.C., office of one of the company’s defense units, and other executives with fraud, bribing Defense Department officials into giving them classified procurement documents, and making illegal campaign contributions to members of Congress. Unisys had already begun its own internal investigation when the government made its accusations public. The company spent the next 12 months working with prosecutors to hammer out an agreement under which it pleaded guilty and paid a fine.

Excessive inventory and slow responses to changes in the defense and information technology industries caused Unisys to lose money in 1989. When President James A. Unruh became CEO in April 1990, he stated that Unisys’s products and strategy would not change, but that its “execution” would.

Principal Subsidiaries

Unisys Canada Inc.; Convergent, Inc.; Timeplex, Inc.; Unisys International Company; Unisys Finance Corporation; Unisys Australia Limited; Unisys Espana S.A. (Spain); Unisys (Schweiz); A.G. (Switzerland); Unisys Belgium; Unisys Deutschland G.m.b.H. (Germany); Unisys Eletronica Ltda. (Brazil); Unisys France; Unisys Italia S.p.A. (Italy); Unisys Limited (U.K.); Unisys Nederland N.V. (Netherlands).