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By Nick Wakeman

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Nick Wakeman

Symantec to split; who's next?

Symantec has joined the growing list of tech companies splitting into two new entities.

We’ve seen services companies undergo splits and spinoffs, most notably Science Applications International Corp. We’ve also seen spin-offs: L-3 and Engility, ITT-Exelis and then Exelis and Vectrus.

And there have been multiple services companies that have divested businesses, though not to the scale of being considered a split or spinoff. Nearly all the major defense-aerospace companies have shed units, either to address organizational conflict-of-interest concerns or portfolio shaping.

The most recent example was General Dynamics selling a small sensor business.

Symantec’s move is more closely aligned to Hewlett-Packard’s decision earlier this week to separate its PC, printer and personal devices business from its enterprise networking, server, IT services and software business.

The thinking is that each new business will be better focused on growth opportunities and make smarter choices around resources. It also creates a clearer picture for investors on what the company is. Theoretically, the more valuable portion of the business can shine and not be dragged down or mixed up with the other portion that perhaps is seen as a less exciting growth opportunity.

Symantec is breaking into one business that will be focused on security, where it holds the dominant position in the market, and another business focused on information management, where they are one of the market leaders.

As separate businesses, each will be able to make decisions on where to invest, how to go to market, what kind of partnerships to form, and other decisions that better address the particular needs of their markets.

Five or 10 years ago, the fashionable strategy was to pull these different businesses together. Scale was the key. Growth was easier to come by.

Today, it is a different market. Things are tighter. The cloud, mobile computing and cybersecurity concerns have increased complexity. The emphasis now is on flexibility and finding and accelerating growth.

The trend of splits, spinoffs and divestitures is expected to continue. So, who are the most likely candidates?

Microsoft is the first to come to mind. They do many, many things. They are in our desktops, in our servers, and in our gaming consoles. They are a cloud provider. They have their Office universe of products. And don’t forget the device side of their business. I’m not the first to speculate whether the parts would outperform the whole.

I also wonder if HP is finished. Once their split is competed by the end of 2015, will they look to shed services? Other than IBM, no one has really cracked the code on having a substantial technology business and a top flight services business. HP’s services business will account for 39 percent of the Hewlett-Packard Enterprise business. Perhaps that will give it more clout internally when there are battles over resources and policies and procedures.

Computer Sciences Corp. has divested several businesses as part of Mike Lawrie’s turnaround plan, but the rumor that doesn’t seem to die is that they will sell their government business. Bloomberg has reported that CSC is talking to bankers about a buyout of the entire company. Perhaps we could see a split as part of a sale to two buyers, one getting the commercial business and another getting the federal business.

But CSC has gone through multiple rounds of acquisition rumors, [Remember when Computer Associates was going to buy them?], and they’ve remained independent and intact.

I expect we’ll continue to see the defense-aerospace companies continue to hone their business mix, but they’ll also be more aggressive buyers as they look to make acquisitions that will build out capabilities in critical growth areas such as cyber, energy, health IT and internationally.

These are interesting times.

Both the government market and the overall technology and services markets are going through a fundamental shift. Some call it a convergence as technology and services, communications and IT all blend together in new delivery models.

Over the next two years, we’ll continue to see a lot of changes as companies adjust and reposition for a market that puts a premium on flexibility, efficiency and innovation.

Posted by Nick Wakeman on Oct 10, 2014 at 9:22 AM

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