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HPE spins off software operation

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While the newly-formed Dell Technologies is betting the farm on scaling up, Hewlett Packard Enterprise (HPE) is moving in the opposite direction and scaling down its business. The company yesterday sold off its software operation for $8,8-billion to the UK’s Micro Focus.
HPE will get $2,5-billion in cash and its shareholders will have 50,1% ownership in the new merged company.
The company, which split from the printer and PC operations last year, already slimmed down considerably earlier this year with the $8,5-billion merger of its technology-services division with Computer Sciences in a deal valued at about $8,5-billion.
HPE’s software offerings include cybersecurity company ArcSight, big-data analytics platform Vertics and the remnants of its $4,5-billion acquisition of Mercury Interactive in 2006. It also includes HP Autonomy, acquired in the notorious 2011 purchase of British software company Autonomy for $11-billion.
The combination of HPE’s software assets and Micro Focus’ complementary portfolio will create one of the world’s largest pure-play software companies.
The new company will have the global footprint, agility and financial strength to drive software innovation across a comprehensive array of products. At the same time, the move enables a standalone HPE to realize its vision of being the industry’s leading provider of hybrid IT, built on the secure, next-generation, software-defined infrastructure that will run customers’ data centres today, bridge them to multi-cloud environments tomorrow, and enable the emerging intelligent edge that will power campus, branch and IoT applications for decades to come.
“With today’s announcement, we are taking another important step in achieving the vision of creating a faster-growing, higher-margin, stronger cash flow company well positioned for our customers and for the future,” says Meg Whitman, president and CEO of HPE.
HPE and Micro Focus have also announced plans for a commercial partnership that will name SUSE as HPE’s preferred Linux partner and will bring together HPE’s Helion OpenStack and Stackato solutions with SUSE’s OpenStack expertise to provide best-in-class enterprise-grade hybrid cloud offerings for HPE customers.
With approximately $28 billion 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 its customers and partners.
The company will deliver secure hybrid IT solutions, leveraging its portfolio of software-defined servers, storage, networking and converged infrastructure.
HPE’s newly-created software-defined and cloud business will build upon key software assets like HPE OneView and the Helion Cloud platform to deliver software-defined Hybrid IT solutions like Synergy – HPE’s composable infrastructure offering.
HPE will also redefine IT at the edge with leading campus, mobility and IoT offerings. The company’s edge solutions enable customers to quickly and securely gain insights from the growing amount of data processed outside of the data centre. And, through Aruba, HPE delivers a platform to enable an innovative user and workforce experience anywhere.
Wrapped around this portfolio is HPE’s technology services capability that helps customers transform their IT environment and take advantage of opportunities in emerging areas like campus, branch and industrial IoT programmes. Technology services comprises about 22 000 service professionals and will represent about 25% of the company’s revenue after the spin-off of its enterprise services business and non-core software assets.
“Services and software remain key enablers of HPE’s go-forward strategy,” says Whitman. “HPE will double down on the software capabilities that power and differentiate our infrastructure solutions and are critical in a cloud environment.”
The combination of HPE’s software assets with Micro Focus is expected to create a business with annual revenues of approximately $4,5-billion. The combined company will have strong recurring revenue streams, global reach and be well diversified across product lines — spanning IT operations, security, information management, big data analytics, cloud, open source and development.
In addition, the company will have a strong go-to-market capability with nearly 4 000 salespeople worldwide, and deep R&D resources to deliver best-in-class solutions to customers and partners.
Micro Focus’ track record of managing both growing and mature software assets will ensure higher levels of investment in growth areas like big data analytics and security, while maintaining a stable platform for mission-critical software products that customers rely on. With this approach, each product line will have a clear and important role in overall company performance, and employees will have a high level of clarity on the strategy for their organisation.
“We believe that the software assets that will be a part of this combination will bring better value to both our customers and shareholders as part of a more focused software company committed to growing these businesses on a stand-alone basis,” says Whitman.
Micro Focus expects to improve the margin on HPE’s software assets by approximately 20 percentage points by the end of the third full financial year following the closing of the transaction, while also investing in key growth areas like big data and security. As owners of 50,1% of the combined company, HPE shareholders will share in the value of these operational improvements, as well as future growth of earnings.
The combined company will be led by Kevin Loosemore, executive chairman of Micro Focus, and Mike Phillips will serve as chief financial officer.
“The time is right for consolidation in the infrastructure software market and this proposed merger will create one of the leading players in this space,” says Loosemore. “The combined organisation will benefit from strong positions in a number of key segments, further enhancing our customers’ ability to leverage both prior and new IT investments to exploit the latest industry innovations such as mobility, cloud, the Internet of Things, big data and analytics.
“The transaction reinforces Micro Focus’ established acquisition strategy and our focus on long term customer value through the disciplined and efficient management of mature infrastructure software products.”