Story image

Expert opinion: HPE Enterprise Services merge with CSC

26 May 16

Article by John Madden, Ovum analyst

CSC and HPE (Hewlett-Packard Enterprise) surprised the market by announcing that HPE would spin off and merge its Enterprise Services unit with CSC, creating an as-yet-unnamed new IT services provider. This “spin-merger,” expected to close by March 2017, will create a new $26bn services player, co-owned equally by CSC and HPE shareholders.

More consolidation for customers, a “new” competitor for services players

Coming less than a year after both CSC and HP split into two businesses looking for greater efficiency and agility, executives at both companies are painting this move as a logical conclusion of their corporate strategies. Whether planned or not, the result for customers is another consolidation in the IT services landscape that they will need to navigate (following the recently announced sale of Dell Services to NTT Data), while competitors are looking at a “new” pure-play contender in the field.

Calling this a marriage of convenience might be a step too far, but describing it as a marriage of equals, both with rocky pasts, is closer to the truth. Both CSC and HPE Enterprise Services have spent the last few years getting their financial houses in order, streamlining services delivery capabilities, revamping portfolios, and shifting delivery to more overseas locations (while cutting overall head count), all to achieve cost efficiencies in an increasingly margin-squeezed services market. HPE Enterprise Services, in particular, has purposely jettisoned what it viewed as low-profit infrastructure services deals (which competitors have subsequently picked up) to focus on higher-value applications services, analytics, and digital transformation projects.

No matter the circumstances of how both companies arrived at this point, on its face the deal does bring some potential gains. CSC (which sold off its lucrative public sector business to SRA) has vertical strength in financial services, insurance, and healthcare, while HPE Enterprise Services brings expertise in telecom, media, and transport. According to CSC and HPE, there’s only 15% overlap in revenue streams from their top 200 customers. To spur additional growth, the new provider will have a focus on cloud, security, application services, business process outsourcing (BPO), and most importantly digital transformation projects, among other areas.

However, any projected successes of the new provider will only materialise if the integration is swift and successful, and if customer communication is clear and on point. The new entity will have some 95 data centres to rationalise and consolidate, for example, if it is to deliver $1bn-plus in cost reductions as promised. HP, to put it mildly, has stumbled in some instances on integration in the past; the bungled EDS integration resulted in the loss of customers and in-house talent, and nearly collapsed HP’s services business. The vendor, however, rebounded from that experience with several solid integrations via acquisition. In addition, both CSC and HPE appeared to handle their recent splits reasonably well, and a separation/integration team is already in place for this deal to avoid mistakes. Delivering regular and consistent benchmarks to its client base on pre- and post-integration plans will be essential if the new company is to avoid losing customers wary of the inertia and confusion that this kind of consolidation can bring.

Article by John Madden, Ovum analyst

Hillstone CTO's 2019 security predictions
Hillstone Networks CTO Tim Liu shares what key developments could be expected in the areas of security compliance, cloud, security, AI and IoT.
Can it be trusted? Huawei’s founder speaks out
Ren Zhengfei spoke candidly in a recent media roundtable about security, 5G, his daughter’s detainment, the USA, and the West’s perception of Huawei.
Oracle Java Card update boosts security for IoT devices
"Java Card 3.1 is very significant to the Internet of Things, bringing interoperability, security and flexibility to a fast-growing market currently lacking high-security and flexible edge security solutions."
How SMBs can use data to drive business outcomes
With the right technology, companies can capture consumer, sales, and expense data, and use it to evaluate and construct future plans.
Survey shows that IoT is RoI across Asia Pacific
A recent Frost & Sullivan survey across Australia, Hong Kong and Singapore shows that IoT deployment improves business metrics by around 12%.
IDC: Aussie spending on IT Services to hit $23.5B by 2023
the project-oriented market which is predicted to achieve the highest CAGR through to 2023; though no market is expected to decline
Sophos hires ex-McAfee SVP Gavin Struther
After 16 years as the APAC senior vice president and president for McAfee, Struthers is now heading the APJ arm of Sophos.
Security platform provider Deep Instinct expands local presence
The company has made two A/NZ specific leadership hires and formed several partnerships with organisations in the region.