DXC Technology will be taking advantage of several opportunities from its recent acquisitions of Bluleader and Virtual Clarity, as well as a new focus that includes “pursuing strategic alternatives for three businesses that do not fit in our focused strategy,” according to Mike Salvino, CEO and president.
Salvino, who was named to those positions in September after being a member of the company’s board since 2019, met with 40 of the company’s largest customers over the past two months and each of its strategic partners, he said Nov. 11 on earnings call for DXC’s second quarter (ended Sept. 30).
DXC has “significant scale and global reach across technology offerings,” with more than $2 billion of cloud and security revenue and $1.4 billion of revenue in data analytics and digital engineering, he noted. “DXC has a loyal customer base that includes many of the largest companies in the world where we run their mission-critical systems,” he said, adding: “We have the opportunities in many of these accounts to increase share of wallet.”
DXC announced Nov. 4 that it bought Bluleader. That Australia-based consulting company “will enhance our” Systems Applications and Products (SAP) “application capabilities,” Salvino said on the call. DXC announced Nov. 8 that it bought Virtual Clarity, a provider of IT-as-a-Service (ITaaS) transformation advisory services. “Virtual Clarity will strengthen our capabilities in delivering cloud assessments and transformation roadmaps to our customers,” Salvino told analysts.
DXC has an “opportunity to shift from providing individual services for many of our customers to integrated industry solutions, leveraging multiple DXC offerings and capabilities,” he noted.
But the company’s “current operating model is complex, resulting in unclear accountabilities as well as slow decision making,” he said, disclosing: “We will be simplifying this structure with greater emphasis on our regions and industries.”
DXC “provides mission-critical services to many of our customers, particularly” in information technology outsourcing (ITO), but that business “has been underemphasized,” he told analysts. Therefore, “we have the opportunity to invest and strengthen this business,” he said, noting “doing this well will provide a foundation of future growth with our existing customers.”
The company plans to “invest to stabilize key accounts and ensure that our delivery is meeting our clients’ expectations,” and will also “make investments to acknowledge, recognize and reward our people, which will strengthen our employee value proposition,” he said. To that end, DXC “started adding outstanding talent to our DXC leadership team and we will continue to add in the areas of account management, sales and delivery.”
For “operational execution, we will invest to enhance delivery,” he said, explaining: “We will simplify the way we work together to drive increased accountability and going forward.”
The three businesses that DXC is “pursuing strategic alternatives for” because they “do not fit in our focused strategy” are its U.S. state and local health and human services business, Business Process Services (BPS), and the workplace and mobility business, he disclosed. “Combined, these businesses represent about 25 percent of DXC’s total revenue,” he said, adding: “These businesses are strong. Our workplace and our U.S. state and local health and human services businesses are market leaders, and we have meaningful” intellectual property (IP) “in our horizontal” BPS business.
Those strategic alternatives “could involve a range of actions to unlock value including potential divestitures to strategic or financial buyers, a spin-off or other transactions,” he explained.
“Going forward,” the plan is for DXC to run as one company focused on the enterprise technology stack versus a traditional business and a digital business,” he said, noting “customers will see one DXC, not two.”
Summing up, he said the company “has a unique opportunity due to three factors: One, DXC has significant scope and scale, along with mission-critical positions at large customers. Two, DXC in recent history has reduced its cost structure in an industry where being cost-efficient boosts your ability to compete. Three, customers are facing transformation challenges across the enterprise technology stack, and they are in need of DXC’s deep ITO capabilities and experience. Customers need a partner like DXC to help them modernize their ITO layer, optimize their data architectures, and make it all secure and orchestrated across the public, private and hybrid clouds. This will now be our main thrust in DXC’s focused strategy to leverage our ITO expertise to help customers across the enterprise technology stack.”
Executing on the strategic alternatives that Salvino discussed “will create a more focused portfolio, strengthen DXC’s ability to grow and unlock value,” according to CFO Paul Saleh. Excluding the three businesses it’s seeking strategic alternatives for, by fiscal 2022, “we would expect the company to have more than $15 billion of revenue, with at least half of the revenue coming from digital offerings,” he said. “We also assume that we will be able to generate net capital proceeds of roughly $5 billion from these three businesses,” he said.