Unisys unleashed: IT services incumbents should heed Unisys selling off its federal services business as a warning shot

On February 6, 2020, Unisys announced it would be selling off its considerable and well-respected federal business to SAIC for $1.2 billion—a move that will see the firm break free of some of its debt burden and, in the process, boost operational flexibility. Divesting such a large and generally well–performing business unit is a risky strategy, but it’s one that should sound a warning shot for IT services providers that had previously written off Unisys as a potential competitor in the fast-moving commercial market, which demands agility and flexibility. 

By selling off its large federal business unit, Unisys can free itself of a debt anchor, allowing the firm to invest in its solutions portfolio 

Undeniably, Unisys’ federal business unit has been its crown jewel, representing a considerable chunk of revenues from deals that the US government poured in to ol’ reliable Unisys, who were able to leverage an at–times unrivaled delivery track record in the space. A prime example is the $152 million contract with the Department of Defense for which Unisys built out a five-year infrastructure program with its cloud services offering CloudForte at the center. 

But, given the recent success of the firm’s solutions, including CloudForte and cyber-security solution Unisys Stealth, it makes sense for the firm to sell off its federal business and concentrate on investing and developing its evolving solutions bench. Investors agree with Unisys’ leadership team; the firm’s stock jumped over 40% on the announcement. A more optimistic view of the firm’s balance sheet will fuel a significant portion of this renewed faith. The company is carrying an estimated $1.7 billion pension deficit, exacerbated by deferred contributions in late 2019. The deal with SAIC will see $1.2 billion of pension and other liabilities paid off, freeing Unisys’ leadership team to create a roadmap for the future of the business without the shadow of crushing debt. 

A more agile Unisys brings a trusted name back into the hyper-competitive IT services market—providers must take note 

When we speak to the major IT services firms, Unisys rarely features as a competitor, partly because Unisys has spent so much of its time and energy focused on US federal and government deals, which is a market that many struggle to compete in. It’s also because Unisys has wrestled with the advantages and disadvantages of its heritage. Being a trusted player in a hard-fought vertical is a serious strength, but it comes with the caveat that Unisys can’t completely transform itself in the same way that other providers have in the past decade by becoming digital firms or jumping from software vendors to agnostic services firms.  

Now, however, Unisys seems focused on investing heavily in its four major solutions: 

• Unisys Stealth, cybersecurity software built on identity-based encrypted micro–segmentation; 
• CloudForte, Unisys’ solution for digital transformation, cloud application development and migration, and cloud management; 
• InteliServe, an intelligent, integrated, client-focused support solution; and 
• ClearPath Forward, an innovative software operating environment for secure, high-intensity enterprise computing. 

Unisys’ CEO Peter Altabef took a gamble when he shifted Unisys’ strategy away from traditional services and onto specific technological solutions. Both CloudForte and Stealth have become increasingly popular; in particular, clients looking for cybersecurity firms are relieved to find a firm such as Unisys with a trusted reputation and the solutions necessary to secure the modern enterprise. Shaking off debt and traditional business units to invest heavily in these solutions and capture more market share is a recipe for success—one that providers in the space must recognize. Competitor complacency may be the biggest boon for Unisys as a more agile model helps the firm out-accelerate rivals before they can recognize the threat. 

The Bottom Line: A reborn Unisys marks a great opportunity for clients looking for an innovation-focused partner with a strong delivery track record, but for providers, it marks the resurrection of an old competitor with a clear domination strategy 

Selling off its strongest growth engine can’t have been an easy decision for the Unisys leadership team, but it was a necessary step to freeing the firm from the crushing debt that has restricted its commercial and operational flexibility. Unleashed, the new Unisys is well-positioned to grow its market share in the IT services space, but for incumbents already battling off rivals, the revival of an old competitor isn’t good news. 

Over the next five years, all IT services firms will have to make some tough decisions as customers continue to abandon traditional labor-based services for more solution–centric services with indirect labor models.