Inside Advanced Scale Challenges|Monday, June 26, 2017
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HPE Spins Off Services Unit in Merger with CSC 

HPE (NYSE: HPE) continues its development into an entity of still-evolving form with the announced spin-off of its enterprise services unit, which will be merged with CSC, in what the two companies expect to be a $26 billion “pure-play” IT services organization.

The move is in keeping with the recent history of the iconic Silicon Valley company, following the 2014 split of the old Hewlett Packard into Hewlett Packard Enterprise (HPE – servers, cloud computing and other “enterprise units," along with HPC) and HP Inc. (PCs and printers). HPE debuted last November with a strategy to compete in an increasingly cutthroat enterprise technology market, in which its enterprise HPC strategy is tightly integrated with Intel and focused on cloud and datacenter infrastructure, while growing its IT security and big data units.

The transaction naturally raises questions about service delivery for HPE customers – particularly future customers. In a press release, HPE emphasized that “agreements between HPE and the new company will maintain focus on serving current customers.” As for future customers, will they “automatically” and transparently be supported by CSC? Can customers buy services on their own? Will the service relationship vary based on the support level that the customer buys?

HPE's Meg Whitman

HPE's Meg Whitman

In a blog post yesterday, HPE President and CEO Meg Whitman said “our customers can rest assured—we will deliver on the commitments we've made. We will create long-term agreements between the new company and HPE to meet our current commitments, while growing new business opportunities over time. In fact, HPE will be one of the new company’s largest customers.”

At least one industry analyst, Chris Willard, Chief Research Officer at Intersect360 Research, downplayed the potential service implications. “The shuffling around of large business units generally has few short term effects on the customer,” he said. “The size of the originations allows them to maintain momentum at the customer support level even as the higher levels are reorganized (aka disrupted).”

In its announcement, HPE and CSC said the transaction is expected to produce first-year “cost synergies” of approximately $1 billion post-close, with a run rate of $1.5 billion by end of year one.

The deal, HPE said, is intended “to further sharpen its leadership in building the vital end-to-end infrastructure solutions necessary to power the enterprise cloud and mobility revolutions.” "Enterprise Services' customers will benefit from a stronger, more versatile services business, better able to innovate and adapt to an ever-changing technology landscape," Whitman said.

"Together, CSC and HPE's Enterprise Services will have the scale, foundation and next-generation technologies to innovate, compete and grow in a rapidly changing marketplace,” said Mike Lawrie, CSC chairman, president and chief executive officer, who will lead the new services company. “We are excited by the great potential this merger brings to our people, clients, partners and investors, and by the opportunity to strengthen our relationship with Hewlett Packard Enterprise."

HPE said that as a standalone company, HPE “will sharpen its focus on secure, next-generation, software-defined infrastructure” that leverages its portfolio of servers, storage, networking, converged infrastructure, as well as its Helion Cloud platform and software assets. “By bringing together leadership positions in these key data center technologies, HPE will help customers run their traditional IT better, while building a bridge to multi-cloud environments.”

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