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The $8.8 billion deal in which Hewlett Packard Enterprise is spinning out its software division and merging it with Micro Focus will create a new entity in the software development world and make Micro Focus a force to be reckoned with.
The move, which is expected to close in the third quarter of HPE’s fiscal 2017, will make once humble Micro Focus into a market leader. Micro Focus has long held a leadership position in providing solutions for COBOL developers and companies modernizing legacy mainframe applications and systems. The merger with HPE Software gives the company a significant boost in the infrastructure software market.
According to reports, HPE had been trying to sell off its software assets for months. Now, as it merges with Micro Focus, the HPE Software business will be part of an organization with approximately $4.5 billion in revenues.
In a statement, Kevin Loosemore, executive chairman of Micro Focus, said, “The combination of Micro Focus with HPE Software will give customers more choice as they seek to maximize the value of existing IT assets, leveraging their business logic and data along with next-generation technologies to innovate in new ways with the lowest possible risk.”
According to Mik Kersten, CEO of Tasktop Technologies, which partners closely with HPE Software on tools, those next-generation technologies include tools and software to support Agile development methods and DevOps practices.
The combined Micro Focus/HPE Software entity will have one of the largest installed bases of enterprise application lifecycle management (ALM) software. Kersten said HPE Software recently demonstrated that it can be at the forefront of innovation and modernization with cutting-edge offerings such as HPE ALM Octane, which is an ALM solution designed to help customers accelerate their DevOps processes.
“But with the dozens of new Agile and DevOps tools on the block, the competitive pressure will be high,” Kersten told eWEEK. “So we will either see this entrenched tool stack stall, with newer vendors chipping away at it as we saw with [IBM Rational] ClearQuest and ClearCase, or we will see continued investment in the innovation needed to modernize and grow this large customer base. I hope it is the latter, as this new entity will be in a very unique position to innovate the tool chain for large-scale software delivery.”
Charles King, principal analyst at Pund-IT, explains that the HPE/Micro Focus deal follows the model HPE used a few months back when it spun out much of its services business to CSC. In essence, HPE gets rid of yet another business unit whose underperformance was a drag on its overall profitability and margins, he said. Shareholders don’t really lose or gain anything, since they receive shares in the new company, he added.
Yet, “Micro Focus will enjoy major growth in its overall size and revenues, as well as a nice profit boost,” King said. “However, the biggest benefit may be in how the deal broadens the company’s portfolio, which was heavily weighted toward traditional mainframe workloads and other legacy technologies. By adding a sizable portion of modern HPE systems and infrastructure software assets and expertise to its quiver, Micro Focus should be able to aim at and hit a considerably larger number of targets than it did a few months ago.”
And this should also enable Micro Focus to compete more effectively against CA, BMC and other enterprise infrastructure software players, King noted.
For its part, Micro Focus said its track record of managing emerging and mature software assets indicates that the company will continue to invest in growth areas like big data analytics and security, while maintaining a stable platform for mission-critical software products.
HPE’s $8.8B Merger Makes Micro Focus an Agile, DevOps Powerhouse
For instance, “It is business as usual for our COBOL and mainframe solutions business,” Chris Livesey, CMO of Micro Focus, told eWEEK. “This announcement does not change our focus on delivering value to our customers today and that won’t change. Our COBOL and mainframe solutions customers, like all our customers, can look forward to the value offered through a significantly broader product portfolio.”
Indeed, at first glance this announcement may simply seem like entrenched enterprise lifecycle tools joining forces, Kersten noted. But more interestingly, it is indicative of how Agile and DevOps are being forced to grow up, and how large organizations’ tool chains are evolving, he said.
“Micro Focus has executed an impressive strategy in providing a home for entrenched tools by acquiring Serena, Attachmate and Borland, with Borland having previously acquired the StarTeam, CaliberRM and SilkTest tools,” Kersten said. “One thing Borland never managed with its acquisition of SilkTest was to put a dent in the huge success of Mercury—now HPE ALM. With this spin-merge, we will witness a major event of all these tools coming together under one roof.”
But to figure out what this means to customers and the industry, the big question is why these tools are still so relevant today.
“The easy answer is that most enterprises are spending the majority of their IT budgets maintaining legacy systems, and these tools are entrenched in the lifecycle management of those systems,” Kersten explained. “But there is another factor at play, in that these tools have evolved to be very good at managing software at scale, where end-to-end requirements management and compliance can be as important a factor to success as team productivity.”
However, while many folks see the synergies between Micro Focus and HPE Software, others view the merger as something of a head scratcher.
“I think time will tell, but it doesn’t seem to be a match between Micro Focus and HPE Software,” said Judith Hurwitz, president and CEO of Hurwitz & Associates. “There are basically different distinct pockets of software for different markets and different customers. It will be difficult to rationalize all the pieces. It also makes you wonder about the future of HPE as a hardware-driven company. The profit is in software.”
Yet, Rob Enderle, president and principal analyst of the Enderle Group, argued that HPE Software has nowhere to go but up. “That business has been mismanaged for so long it has to improve under focused leadership,” he said. “They were killing key assets like 3PAR. Whitman [Meg Whitman, CEO of HPE] has clearly figured out she can spike HP’s stock by selling off assets and having people who understand the business buy them is better than where they were. It does make you wonder if she’ll be the last HP employee left given she appears to be selling everything off.”
Meanwhile, Charlotte Dunlap, principal analyst at Current Analysis, argues that it just might be too late for some elements of the HPE Software portfolio to catch up to competitors.
“These days mega-merger investments revolve around tools and platforms which support a smooth business transition to the cloud,” Dunlap told eWEEK. “Trouble is, HPE has struggled to refine its cloud strategy, spanning Helion to Stackato, so it’s questionable as to whether Micro Focus enterprises will trust HPE’s cloud stack at this stage of the game, versus competitors IBM, Microsoft and others providing mature IaaS [infrastructure-as-a-service]to PaaS [platform-as-a-service] offerings.”