CSC-HPE services combo: 'We go. Monday.'
- By Ross Wilkers
- Mar 29, 2017
“We go. Monday.”
Computer Sciences Corp. CEO Mike Lawrie put it succinctly to investors Wednesday on the company set to form out of CSC’s merger into the enterprise services business of Hewlett Packard Enterprise.
With Lawrie remaining at the helm, Tysons, Va.-based DXC Technology will begin trading on the New York Stock Exchange Monday and start its new journey as a global IT services giant at nearly $24 billion in pro forma annual revenue.
DXC said in presentation slides it expects 23 percent of total sales -- or $5.5 billion -- to come from the public sector: 12 percent in the U.S. and an additional 11 percent from international public sector customers. That breaks out to nearly $2.9 billion in U.S. public sector sales and $2.6 billion for the international component.
Lawrie struck an optimistic tone on growth prospects for the U.S. public sector business during the question-and-answer session with analysts during the DXC Investor Day presentation in New York City. He also tamped down analyst speculation the company would offload that business either through a sale or separation.
Lawrie expects the U.S. public sector business to record low-single digit growth “as we go forward” and that sequestration cuts “will be finally behind us" despite current lack of clarity over the federal budget environment.
“The general idea is there will be more expenditures in the public sector than there has been in the last three-to-four years,” Lawrie said.
“On what happens in Washington, any insight you have I’d love to hear from you because I don’t,” he joked to the analysts in attendance.
DXC’s projection and Lawrie’s comments are noteworthy as CSC had spun out its former U.S. government business in November 2015 in a two-part transaction to create the $5 billion revenue company now known as CSRA. The merger with the enterprise services business of HPE effectively puts CSC back into the U.S. public sector business.
That HPE segment also is bringing to DXC the large Navy Next Generation Enterprise Network contract. HPE and CSC competed head-to-head in 2013 for that $3.5 billion price.
CSC and CSRA had entered a two-year non-compete agreement upon the deal’s completion that prohibited CSC from certain U.S. federal, state and local government market areas.
CSC had identified that agreement as a risk factor in efforts to complete the deal, IT industry trade publication CRN reported in February. CSC and CSRA amended that pact in February to let the HPE ES U.S. government business remain as is through the merger to create DXC.
CRN quoted an analyst as saying 10 percent of the HPE federal government business going into DXC competes directly with CSRA.
HPE identifies its IT services for U.S. public sector agencies as those in areas such as application services, mobile devices, cloud computing, big data and security. CSRA competes in cybersecurity, data and analytics for example. Besides the Navy NGEN contract, HPE ES' other major customers include the Defense, Justice, Treasury and Health and Human Services departments.
DXC and CSRA also happen to have several similar industry partnerships with vendors: Amazon Web Services, Microsoft, Oracle, SAP and Salesforce.
DXC Executive Vice President and General Manager Mike Nefkens highlighted their belief that pure-play IT services companies like DXC are the new means for customers to advance their digital transformation efforts as opposed to in-sourcing from within.
Customers want to focus on business outcomes and can lack experience in IT, Nefkens said. That trend can lead to the prospect of “outside-in” innovation from DXC and others who have done digital transformations in their business already, he said.
That serves as a timely backdrop in light of efforts at agencies to transition to new IT environments and digital enterprises through partnerships with commercial vendors and systems integrators.
Marilyn Crouther, who currently leads the HPE ES government business, will oversee the U.S. public sector business at DXC as senior vice president and general manager. She will report to Nefkens, EVP and GM of regions and industries, and he will in turn report directly to Lawrie.
Investors have welcomed the pending CSC-HPE enterprise services combination and also what it means for HPE post-separation. CSC’s stock has doubled since the merger’s May 24, 2016, announcement and was up nearly 7 percent in Tuesday trading as of mid-afternoon.
HPE’s has climbed 48 percent since the deal's announcement as of mid-afternoon Tuesday. By comparison, the U.S. stock bellwether S&P 500 composite index has risen 15 percent in that time.
DXC will also join the S&P 500 Monday. CSRA replaced CSC on the S&P 500 upon the November 2015 launch. HPE will remain in the S&P 500.
Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at firstname.lastname@example.org. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.