HP Spinoff Doing Its Own IT Services Spinoff

Hewlett Packard Enterprise will merge its troubled IT services unit with Computer Sciences Corp. , creating a company with $26 billion in revenue.
Katie Kuehner-HebertMay 25, 2016

One of the two companies created from the split of Hewlett-Packard is splitting itself up through a deal with IT services provider Computer Sciences Corp.

Hewlett Packard Enterprise announced Tuesday it will spin off its troubled IT services unit and merge the business with CSC in a deal worth about $8.5 billion.

HPE’s shareholders will end up owning about half of the combined company, which is expected to have annual revenue of about $26 billion from some 5,000 clients in 70 countries. Hewlett-Packard got into IT services through its $14 billion acquisition of EDS in 2008.

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“The standalone HPE will be a faster-growing company that’s intensely focused,” CEO Meg Whitman told Recode. “With the spin-off we’re creating two companies that are stronger and more focused and able to innovate faster than before.”

Hewlett-Packard’s split into Hewlett Packard Enterprise and HP Inc., selling PCs and printers, was completed last year. “What will remain at HPE is a leaner $32 billion company that leads the world in sales of servers,” Recode said.

In trading Wednesday, HPE shares were up 6.4% at $17.30 while CSC soared 41% to $50.28.

News of the spinoff came as HPE reported it made a per-share profit of 42 cents in the second quarter on revenue of $12.7 billion, more or less meeting the expectations of analysts. Revenue from the low-margin IT services business fell 2% percent to $4.7 billion year-over-year.

“Even before the split, HPE had planned to replace 60% of its IT service staff from the U.S. and Europe with cheaper workers in Costa Rica, the Philippines, Bulgaria, and India, in an effort to boost profitability,” Ars Technica noted.

CSC’s services include software and IT consulting, re-selling public cloud offerings to corporate customers, and handling the IT needs of U.S. federal government agencies. It posted annual revenue of $12.2 billion in the year ending April 3, 2015.

“The new company … will be a pure player in the low-margin, IT outsourcing market that had been a shrinking, expensive weight around the old HP’s neck during the time it was struggling to bounce back,” Recode said.