The Blue Bell, Pa., technology hardware and services company Unisys Corp. says it may sell its stake in a troubled U.K. check-processing joint venture.
Joseph McGrath, the chief executive of Unisys, told analysts Wednesday that the venture, Intelligent Processing Solutions Ltd., is one of two "challenging" outsourcing operations that have hurt his company's earnings over the past six months, and that fixing the two operations has taken longer and cost more than expected.
On Wednesday, Unisys reported a second-quarter net loss of $27.1 million, or 8 cents a share, compared with net income of $19.4 million, or 6 cents a share, a year earlier. It also lowered its 2005 earnings forecast to a range of 33 to 38 cents a share, from a previous range of 50 to 60 cents. (Both forecasts exclude pension expenses.)
Mr. McGrath said his company is in talks with its banking partners "to sell our ownership position in the joint venture, and/or make other changes to the service agreement."
Intelligent Processing is a joint venture between Unisys and three U.K. banking companies: Barclays PLC, Lloyds TSB Group PLC, and HSBC Holdings PLC. It was formed in 2000.
The unit processes checks for several U.K. banks, handling about 70% of the country's total check volume and generating about $200 million of annual revenue.
Mr. McGrath said Unisys has about $235 million of assets related to the venture, and that if Unisys sold its stake, it could remain involved as a subcontractor.
One of the problems with Intelligent Processing has been "migrating" the various bank partners' information technology systems to "one common system," Mr. McGrath said.
"While we believe that our ongoing discussions will result in the recovery of these assets, the final outcome of negotiations could differ from current expectations, which may impact our ability to recover the assets," he said. "We are working aggressively to address the issues in these two challenging contracts."
Spokespeople for Lloyds and Barclays said they could not comment on possible ownership changes in the venture. An HSBC spokeswoman declined to comment.
Mr. McGrath did not name the other troubled outsourcing operation, but he said Unisys has renegotiated labor contracts and added customers to try to improve it.
Unisys' second-quarter results were weighed down by heavy pension expenses, the problems with the outsourcing operations, and weak demand for enterprise servers, he said.
Revenue rose 3%, to $1.44 billion. Revenue from IT services rose 6.7%, to $1.24 billion, while hardware revenue fell 13%, to $199.5 million. Unisys has said it wants to focus its consulting operations on outsourcing, and that it hopes to follow a model much like International Business Machines Corp.'s to expand its business beyond hardware and software sales.
Mr. McGrath told analysts his company is "working through a transitional period in our business," and is in the middle of an "in-depth strategic planning process."
It is cutting costs and strengthening its sales and marketing practices, Mr. McGrath said. It also plans to raise awareness of the Unisys brand; he said he would have more details in the fall.
Second-quarter customer orders for Unisys' services rose at a double-digit rate, according to Mr. McGrath; he expects order volume to remain strong in the second half.
There has been recent speculation that Unisys might sell some assets, and one analyst asked Wednesday whether it would consider splitting up the services and hardware operations.
Mr. McGrath downplayed that possibility. "The reason we're a two-part business is we really believe there's a high degree of synergy between our two businesses," he said.
Later he added, "We do not intend to manage them separately, but rather take advantage of their combined synergistic effects."
