HPE second quarter results reveal risks in CSC services deal

HPE’s CEO Meg Whitman admits the company’s flagship private cloud will need to run in CSC/ES datacentres

Hewlett Packard Enterprise (HPE) reported second quarter net revenue of $12.7bn, up 1% from the same period the year before.

The company announced it was offloading its services arm by merging its Enterprise Services (ES) business with CSC, making HPE a $33bn organisation focused on cloud computing.

HPE's Enterprise Group revenue was $7bn, up 7% year over year, and servers revenue was up 7%, while storage revenue was up 2%. The company also reported networking revenue was up 57%, while its technology services business reported a decline in revenue of 6%.

Enterprise services revenue was $4.7bn, down 2% year over year, while its infrastructure technology outsourcing business reported revenue down 1%.

Revenue from HPE’s application and business services divisions were 3% lower than in 2015. It also reported software revenue of $774m, down 13% year over year.

In its software business, licence revenue declined 12%, support revenue dropped 16%, professional services fell 3% and software-as-a-service (SaaS) revenue plummeted by 11%.

As Computer Weekly previously reported, the company announced it would spin off its troubled enterprise services business, which will merge with CSC to form a $26bn IT services company.

HPE CEO Meg Whitman wrote in a blog post: “The standalone HPE will focus on secure, next generation, software-defined infrastructure that leverages a world-class portfolio of servers, storage, networking, converged infrastructure, as well as our Helion cloud platform and software assets.”

She said HPE would also work to redefine IT “at the edge” by using Aruba and internet of things (IoT) applications.

Read more about HP and CSC

  • CSC splits itself in two to make its sale easier, say sources, with Indian supplier Wipro touted as a potential buyer.
  • HP decides to split the company in two, with its consumer computing and printing departments separated from its software, business servers and IT services operations.
  • HP is two months away from splitting the company into HP Enterprise and HP Inc.

In a transcript of the earnings call posted on the Seeking Alpha financial site, Whitman stressed the importance to its strategy of converged infrastructure, hyper-converged systems, and the Helion cloud platform.

When asked how this cloud strategy will fit alongside the CSC deal, she said: “The Helion cloud platform as a whole will sit on the Hewlett Packard Enterprise side.” This means at least part of it will need to be run by the CSC/HPE services business.

Whitman admitted that HPE’s virtual private cloud and managed private cloud are currently delivered through its ES business, meaning these will go over to the newly merged CSC services company. But this has only been negotiated for three years.

Whitman said: “The last thing I wanted to do was combine CSC with ES and then lose the infrastructure pull-through. That would not have been of value to Hewlett Packard Enterprise.

“So we’ve negotiated a fair deal. It allows CSC to continue to work with people they’ve worked with in the past, but we’ve also got a commitment from them for the next three years.”

Seamless customer experience

Commenting on how HPE’s customers will be affected, Whitman said: “We’re going to be working closely together to make sure there is a seamless offering in the marketplace when someone wants a private cloud, virtual private cloud or managed private cloud.”

Whitman said while HPE has a relationship with Microsoft on Azure, CSC has a relationship with Amazon Web Services (AWS). “The new company will be able to offer both to customers, which will be a real benefit.”

Given that between the two companies there are 95 datacentres, Whitman admitted the two firms would consolidate multiple offshore locations and delivery centres. “We will be able to consolidate delivery centres and leverage our position in India, China, Costa Rica and other places,” she said.

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