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Unisys Swings to a Loss

The company will cut 10% of its work force.

Updated from 1:50 p.m. EDTUnisys (UIS) - Get Free Report, which warned of disappointing third-quarter results last week, said Tuesday that it swung to a loss on a 4% drop in revenue. The company also announced plans to lay off 10% of its work force, but indicated fourth-quarter earnings could come in higher than current expectations.

Shares of Unisys recently increased 15 cents, or 2.5%, to $6.05.

The Blue Bell, Penn.-based IT services firm lost $54.3 million, or 16 cents a share, on sales of $1.39 billion in the third quarter. That was down from a net income of $25.2 million, or 7 cents a share, on $1.45 billion in sales in the year-ago quarter.

Analysts, who lowered their ratings after the company's

preannouncement, were most recently expecting a loss of 17 cents a share on $1.39 billion in sales.

Excluding pension expenses, Unisys lost $24.3 million, or 7 cents a share, in the third quarter -- far short of an earlier prediction of a profit of up to 6 cents a share. A year ago, the company earned $41.1 million, or 12 cents a share, in the third quarter.

In response to the news, Standard & Poor's Rating Services lowered its outlook on Unisys to negative from stable and reaffirmed its "BB-" credit rating on the company's debt. "The outlook revision reflects weaker-than-expected operating performance in the company's third quarter, and the corresponding negative effect that this will have on free cash flow for the remainder of the year," said Standard & Poor's credit analyst Philip Schrank.

While an intense competitive environment will continue to challenge Unisys to increase revenue and profit margins in the near term, Schrank noted that the company should eventually start benefiting from the cost cuts and improvements in problematic contracts.

Unisys said it plans to reduce its headcount by 10% over the next year, resulting in cost restructuring charges of $250 million to $300 million through 2006. The company expects the cuts to shave $250 million in annual costs by the end of 2007.

Unisys suffered a decline in overall orders in the third quarter, with a substantial drop in outsourcing orders driving a double-digit percentage drop in service orders. Systems integration and consulting orders grew in the double-digit percentages from a year ago.

The company's high-end server business also suffered weakness as a few clients deferred decisions on transactions expected to close during the quarter. Customer revenue in the technology segment declined 29%.

Looking forward, the company said it expects a profitable fourth quarter, with earnings ranging from 10 cents to 15 cents a share excluding restructuring charges, driven by higher sales of enterprise servers in its technology business. However, the company acknowledged that fourth-quarter results will be heavily dependent on its ability to close a number of very large technology deals.

Analysts were expecting earnings of 7 cents a share in the quarter.