HP Enterprise (HPE) has decided to spin-off its enterprise services division and merge it with IT services firm CSC to become a US$26 billion company. But what will all this mean for both organisations? Let's find out.
HPE and CSC are pitching this deal as a way to "create one of the world's largest pure-play IT services companies, uniquely positioned to lead clients on their digital transformations". Between the two of them, they have 5000 IT services customers in over 70 countries.
To put it simply, HPE is ditching its IT outsourcing business and handing it over to a company that could potentially do more with it. What's left of HPE will focus on cloud, hardware and datacentre infrastructure offerings.
It's worth noting that HPE was a result of a previous split of HP, which divided up its consumer and enterprise businesses. CSC also separated into two companies: one to focus on commercial businesses while the other one would concentrate on the public sector.
Here's what the HPE's enterprise service unit and CSC aims to offer through this merger:
World-class strength in customer service and IT operations - among the safest pair of hands in the industry, deploying a broader set of resources and expertise to benefit clients; Market-leading industry and technology expertise - industry leading experience and IP in areas such as financial services, healthcare and life sciences, transportation, consumer products, and insurance, helping customers transform faster; Global scale - operating 85 delivery centers and 95 data centers across 70 countries, providing access to the most efficient IT services in the world; Technology independence and best-in-class capabilities in next-generation cloud, security, application development and modernization, big data and analytics, mobility, workplace, and sophisticated business process and IT services; Combined leadership bringing deep turnaround experience and transformation capabilities, customer relationships, sales/GTM, industry and functional expertise; Expanded best-of-breed technology partnerships that provide greater choice of solutions; and Enhanced innovation, R&D, and investment opportunities for new services and solutions.
Putting aside the marketing guff, how will this deal impact both companies? HPE's outsourced IT services division has struggled for a long time, even before the big HP split. The business had improved since then, but growth had somewhat stagnated. While CSC is smaller in the IT services space compared to HPE, it has done well to establish itself as a respected provider in various verticals.
According to IT analyst firm Gartner, in terms of market share, HPE is the third largest IT services provider globally with 3.3 percent of the market in 2015. CSC had 1.2 percent of the US$865.8 billion worldwide IT services market in 2015. The merger will no doubt bring much needed scale to both companies.
HPE and CSC expects to generate cost synergies of around US$1 billion in the first year, so both companies will save money as well.
Gartner also noted:
"[A]cquisitions, mergers and alliances will continue in the IT services market in 2016 as a key means for providers to add skills and scale, drive revenue growth and to fill gaps in capabilities and global coverage. These gaps are in the areas of the digital, cloud, security and the Internet of Things (IoT)."
The new company that will result from the merger has yet to be named. It may well just be called CSC given that Mike Lawrie, who is currently the chairman, president and CEO of CSC, will become chairman, president and CEO of the merged entity.