DXC is betting IT apps and services will stay on-premises

New DXC CEO Mike Salvino talks about getting rid of distraction businesses to focus on what he calls the enterprise stack.

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DXC Technology, the massive service provider formed in the 2017 merger of HPE Enterprise Services (formerly EDS) and Computer Sciences Corp., has a new CEO who is focused on shedding distraction businesses and focusing on core businesses of IT outsourcing.

That means looking at "strategic alternatives," including the possible divesture of three of its businesses it feels are a distraction and slowing the company’s growth. The company feels most IT apps and services will remain on-premises and will focus on supporting that business.

Last week’s conference call with financial analysts to discuss Q2 earnings was the first for new CEO Mike Salvino, who joined the company in September after 22 years at Accenture. DXC did not have a good quarter. The company reported non-GAAP earnings of $1.38 per share, which fell short of the consensus estimate of $1.44 and way down from EPS of $2.02 from the same quarter a year ago. Revenue of $4.85 billion fell short of the analyst estimate of $4.92 billion.

On the call, Salvino told analysts DXC evaluated each of its businesses against four criteria: their importance to the enterprise technology stack; their ability to create industry solutions; how they provide what customers want; and their potential to unlock value.

Based on that set of criteria, DXC decided to pursue strategic alternatives for three of its businesses: its U.S., state, and local health-and-human-services business; its horizontal business-process services (BPS) business; and its workplace and mobility business, he said. All told, these businesses represent about 25 percent of DXC's total revenue, he said.

"These businesses are strong," Salvino said. "Our workplace and our U.S., state, and local health-and-human-services businesses are market leaders, and we have meaningful [intellectual property] in our horizontal BPS business." DXC is considering a number of choices, including sale and spin-off of the businesses.

He went on to say that going forward, DXC will run as one company focused on the enterprise technology stack versus the traditional business and a digital business. “Customers will see one DXC, not two,” he said.

Salvino said DXC would re-emphasize its information-technology-outsourcing (ITO) business, which he said is critical to DXC’s success. When asked about the erosion that's occurring in that business, Salvino said when you deliver for your customers, simply put, you get more business, which means moving up the stack and not just staying in the ITO layer.

He also noted 70 percent of today's workloads will continue to be on-prem or in the private clouds in 2023, so Amazon, Microsoft, and company are not taking over just yet. “The market is not going away...Not everything is going to move to the cloud," he said.

 IT modernization is a business DXC needs to get right and would be “ours for the taking,” he said.

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