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HPE spins out enterprise services business into CSC
Breaking up is not hard to do
HP Enterprise (HPE) has spun out its enterprise services business into CSC, creating an entity with US26bn of revenue.
HPE has made lots of noise about turning around its services division, largely by aggressively reducing its headcount. In this move, HPE will be senior partner in the new entity by revenue and headcount but the branding of the combined force has yet to be confirmed.
The announcement has been well-orchestrated and was revealed as markets closed in the United States, so we are working from saccharine canned statements on this one while trying to read between the lines.
What Whitman and CSC chair, president and CEO Mike Lawrie want us to know is that the combined entity will be a “pure-play services company”, which is apparently rather better than a technology company with a services unit bolted on.
Lawrie reckons CSC will emerge bigger and stronger, pledges technology agnosticism and swears on mountains of holy books that HPE services customers won't encounter changes to their arrangements other than new bills arriving on new letterhead. HPE's Whitman promises HPE won't be dropping anyone in the doo-doo and says “I am 100 per cent committed to ensuring there are no disruptions for you” and says the deal is “the logical next step for our enterprise services business”.
HPE and CSC will sign “long-term agreements to ensure that current customer commitments continue to be met.” Which we think translates as “Good luck using the merger as an excuse to get out of or heavily modify your current services contracts even if you hate CSC and HPE.”
HPE's CEO also thinks the company's investors will like the deal, as HPE will trouser US$4.5bn in cash, end up with “ approximately 50 percent of the merged company” and therefore the same share of future dividends. HPE will retain some debt. Both companies expect “synergies” to deliver $1bn of immediate savings, with $1.5bn in subsequent years.
Whitman says sloughing off services means the company can “focus on secure, next generation, software-defined infrastructure that leverages a … portfolio of servers, storage, networking, converged infrastructure, as well as our Helion Cloud platform and software assets.” The company also wants to make a play for “IT at the edge with … Aruba and computing products for campus, branch and Internet of Things applications.”* HPE will emerge with about $33bn in annual revenue, a far-from-trivial sum but one that places it rather behind both EMC/Dell and Cisco.
Analysis CSC has quietly built a well-regarded cloud in recent years and structured services agreements that make clever use of it and an operational expenses model. CSC isn't alone in having done well with an under-the-radar cloud: NTT and Fujitsu are there too.
This deal therefore needs to be considered in the context of HP's decision to walk away from its Helion cloud, because it shows that HPE's plan to integrate integrate hardware, services and cloud failed comprehensively.
It's also unwelcome news for OpenStack. HPE bet big on the project, but couldn't enthuse customers beyond the very biggest end of town. Another quiet CSC achievement is becoming one of VMware's bigger and more committed cloud partners. The deal will therefore raise some some smiles down Virtzilla way as it contemplates the prospect of more hybrid workloads landing on vSphere.
Cloud also gives organisations in long and complex services deals their best moment at which to start afresh . The combined services entity will have plenty of challenges finding ways to keep itself relevant in those circumstances.
Which is not to say the new entity will be a dinosaur: NTT's slurp of Dell's services business tells us there are still some who think global scale and expertise with tier one hardware players is important in services. Yet surely the advent of cloud and global talent pools means the “your mess for less” proposition is fading fast.
The Register therefore expects that the new entity will quickly define new products and services. CSC's made a good start.
One more thing: the deal shows that breaking up is not all that hard to do. HPE's famously the result of a split with HP Inc. CSC itself split last year into entities devoted to services for government and services for the rest of us. Two splits apiece in two years will probably spawn unpleasant amounts of copycat management “advice” about how to break up without tears or lost dignity. HPE stock was up about one per cent on the day, CSC tipped up two per cent, but as the announcement came late in the day we may need to wait 24 hours to learn what markets think of the move. HPE also announces its second quarter results on Wednesday, US time. ®
* Our lacunae excise only horrid "world-leading" marketing guff. Source docs here if you can tolerate that stuff.