Hewlett Packard Enterprise is spinning out its enterprise software businesses and merging it with Micro Focus as CEO Meg Whitman continues to pare down the company’s product portfolio to focus on enterprise infrastructure and services.
The deal, announced Sept. 7, comes after weeks of speculation that HPE was looking to shed the software business as part of the continued restructuring of the company since Hewlett-Packard split in two in November 2015 to create HPE and HP Inc., which sells PCs and printers. It also comes the same day that one of HPE’s biggest rivals, Dell Technologies, completed its $60 billion-plus acquisition of data storage leader EMC, creating a much larger company with a broad reach across the enterprise IT landscape.
Where CEO Michael Dell said earlier in the day that scale is important for an IT vendor, Whitman told analysts and journalists during a conference call that with the rapid changes going on in the industry around the cloud, internet of things (IoT), data analytics and software-defined infrastructure, what is needed is the focus and agility of a smaller company.
“What they’re doing is doubling down on old technology,” she said, adding that while that may be good for company leadership, “I don’t know if it will be good for customers.”
The announcement came as HPE announced fiscal year third-quarter financial numbers, including revenue of $12.2 billion, about a 6 percent decline from the $13.1 billion from the same period in 2015.
The deal with Micro Focus comes to about an $8.8 billion value, according to HPE. Micro Focus will pay HPE $2.5 billion in cash, and HPE shareholders will own 50.1 percent of the combined company. The new company will be run by Kevin Loosemore, executive chairman of Micro Focus, and will keep the Micro Focus name.
The software assets HPE is moving to Micro Focus touch on such areas as application delivery management, big data, enterprise security, information management and governance, and IT operations management, all of which Whitman said are not core to the company’s efforts around hybrid IT, software-defined and cloud infrastructure, edge computing and analytics, and converged and hyperconverged data center solutions. All of it is support by HPE’s Technical Services business, she said.
With HPE shareholders owning half of the merged company, they will benefit from improvements Micro Focus can make, Whitman said.
“Micro Focus’ approach to 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,” she wrote in a post on the HPE blog. “Because of this, I believe that the software assets that will be a part of the combined company will bring better value to our customers, employees and shareholders as part of a more focused software company.”
When she first became HP’s CEO in 2011, Whitman argued against breaking up the company and instead pushed a “better together” strategy. However, that changed last year when HP broke in two. That said, Whitman already had begun to remake the enterprise IT business even before the breakup, buying Aruba Networks last year for $3 billion, selling a controlling stake in its China-based networking subsidiary H3C Technologies, and its TippingPoint security division to Trend Micro for $300 million.
Since becoming HPE, the company has unveiled plans to spin out the company’s enterprise services business as a separate entity and merge it with Computer Sciences Corp. (CSC), in a deal valued at $8.5 billion, and bought supercomputer maker SGI for $275 million in a move to become a larger player in the $11 billion high-performance computing (HPC) space.
HPE Ships Software Unit to Micro Focus in $8.8 Billion Deal
During the conference call, Whitman stressed that HPE isn’t giving up on software. While the company is spinning out its application software business, it is keeping its systems software, such as OneView, StoreVirtual and Helion. Data centers will continue to move to software-defined environments, which will make such offerings important. In addition, systems software is critical to such areas as converged, hyperconverged and composable infrastructures.
In a research note, Molly Gallaher Boddy, research analyst with Technology Business Research, wrote that HPE’s decision to move much of its software—while keeping other software assets—”will help the company to further narrow its focus on hardware and converged systems. In moving its non-core assets to a new company, HPE will free up resources to drive its hyperconverged and software-defined businesses, with remaining software assets primarily used to enable these infrastructure-focused solutions.”
In a nod to HPE’s continued focus on system software, Whitman also pointed to a partnership that will tap SUSE as the company’s preferred Linux partner. The combination of HPE’s Helion OpenStack and Stackato offering with SUSE’s OpenStack capabilities will push forward the company’s capabilities in hybrid clouds.
The CEO got some pushback from several financial analysts during the conference call, with questions about HPE shrinking from a $50 billion company immediately after breakup to a $28 billion organization now and whether continuing to parcel out pieces of the company is a sustainable strategy against the likes of Dell and Cisco Systems. Whitman argued that HPE is becoming a more focused, agile and innovative company that is centered around its Enterprise Group, while Dell is burdening itself by taking on another large, old-tech company. For its part, Cisco lacks a component—storage—that is key to developing a complete infrastructure portfolio.