HPE makes further divestments with Micro Focus tie-up to target software-defined market

British software company Micro Focus becomes an enterprise software powerhouse as HPE offloads enterprise software infrastructure products

Micro Focus and Hewlett Packard Enterprise’s (HPE’s) software business segments are set to merge in a transaction valued at approximately $8.8bn.

In a transcript of HPE’s earning call posted on the SeekingAlpha financial blogging site, HPE CEO Meg Whitman said the company has been looking at spinning off assets that are not delivering shareholder value.

The assets mentioned include the application delivery management, big data, enterprise security, information management and governance and IT operations management businesses.

She said: “Micro Focus’s approach to managing growing and mature software assets will ensure higher levels of investment in growth areas such as big data analytics and security, while also maintaining a stable platform for mission critical software products that customers rely on.”

The proposed merger will deliver a $4.5bn infrastructure software company.

“We believe that the software assets that will be a part of this combination will bring better value to our customers and shareholders as part of a more focused software company committed to growing these businesses on a stand-alone basis,” said Whitman.

Micro Focus boosts enterprise portfolio

Kevin Loosemore, executive chairman of Micro Focus, said: “Today’s announcement marks a significant milestone for Micro Focus, and is consistent with the long-term business strategy we have been pursuing to be the most disciplined global provider of infrastructure software. The proposed merger with HPE Software is consistent with our acquisitions of Serena Software and the Attachmate Group.

“The combination of Micro Focus with HPE Software will give customers more choice as they seek to maximise the value of existing IT assets, using their business logic and data along with next-generation technologies to innovate in new ways with the lowest possible risk.”

Along with IT operations management, software delivery and test, enterprise security, information management and governance and big data analytics from HPE, Micro Focus’s part of the deal brings Cobol and mainframe tools, collaboration and identity and access management tools.

A string of acquisitions has meant that Micro Focus’ enterprise software portfolio spans from the operating system and development tools (through the acquisition of Borland), through to legacy renewal and private cloud.

In 2014, Micro Focus bought its main rival, Attachmate, which previously purchased networking software company Novell in 2010.

Novell acquired SuSE in 2003. As part of the HPE/Micro Focus transaction, SuSE will become HPE’s preferred Linux partner.

Micro Focus and HPE have said they intend to collaborate to offer HPE’s Helion OpenStack and Stackato CloudFoundary-based enterprise cloud products.

Nils Brauckmann, CEO of SuSE, said the partnership will focus on areas such as cloud computing, software-defined networking and application platforms.

“The combination of SuSE’s open source expertise and OpenStack capabilities with HPE’s Helion and Stackato offerings can create best-in-class enterprise systems for our mutual customers.”

What remains of HPE?

The deal leaves the remaining part of HPE set up to compete directly with Dell Technologies, formed following the completion of the $74bn merger of Dell with EMC. Both companies appear to be targeting the internet of things (IoT) opportunity.

HPE’s third quarter 2016 earnings showed that revenue was $12.2bn down 6% from the previous year. It said margins were up due to a shift focus to selling into more profitable market segments.

Enterprise Group revenue was $6.5bn, down 8%. When adjusted for divestitures, HPE said the group reported flat revenue. Enterprise Services revenue was $4.7bn, down 5% year over year. Infrastructure Technology Outsourcing revenue was down 6%, and Application and Business Services revenue was down 4%.

In the earnings call, Whitman said: “With approximately $28bn in annual revenue, the future HPE will have significant scale, a diversified world-class portfolio and a global footprint to meet the evolving needs of our customers and partners.

“We’ll be a market leader in the datacentre and on the edge with our world-class portfolio of software-defined servers, storage, networking and converged infrastructure.”

When asked about the company’s emphasis on divesting to maintain cashflow, Whitman said when HPE formed after splitting from Hewlett Packard, it wanted to focus on software-defined infrastructure and build out HPE’s cloud platform and compute storage in networking at the edge.

“That’s exactly what we have done and as we’ve laid out that strategy, we looked at our portfolio, questioned what do we need to add to the portfolio – either in acquisitions or partnerships – and what do we need to divest. Those assets are non-core to the strategy, it doesn’t mean they are bad assets, they are just not core to what we are doing.”

In May 2016, HPE merged its Enterprise Services business with CSC, but Whitman argued that the company is still doing services.

“We are still going to be in the services business. Some 25% of the revenue of HPE will be services – it is just a different kind of services business than IT outsourcing, business process outsourcing and apps maintenance,” she said.

Whitman also confirmed that HPE’s enterprise group will remain as one business: “Everything is moving to converge and we have a differentiated position because we have networking storage and compute. Our two major competitors are missing a key component of that offering, so that is important to keep together.”

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