DXC Technology Considers Divesting Non-Core Units After Reporting a Multi-Billion Quarterly Loss

Amy Larsen DeCarlo – Principal Analyst, Security and Data Center Services

Summary Bullets:

• In the same month DXC announced two new acquisitions, the company said it is may sell off three non-core business units

• DXC wants to invest the proceeds to strengthen its core IT outsourcing business

Less than two months after assuming the role of President and CEO at DXC, Mike Salvino made waves when he told financial analysts on an earnings call the company is considering the sale of non-core business units. Saviano said executives are looking seriously at divesting three organizations: Workplace & Mobility; U.S. State and Local Health Human Services; and Horizontal Business Process Services. This comes as DXC posted dismal Q2 FY 2020 earnings that saw revenues slide 3.4% versus the same quarter a year ago.

In a letter to clients, partners, and employees posted on DXC’s site, Salvino said that the company is reinvesting in its business, adding that “Core to this new strategy is a reemphasis on our ITO business.” The company has spent capital to build out its consulting and managed services capabilities, snapping up Swiss engineering firm Luxoft earlier this year. That acquisition has already paid dividends, contributing to the 8.2% year over year increase in Global Business Services revenues.

The company, itself the product of the 2017 merger of CSC and HPE Enterprise Services, has been active in making acquisitions throughout its short history to expand professional services capabilities in targeted areas. To this end, in August DXC bought ServiceNow consulting firm Syscom. Just this month, DXC made a pair of acquisitions buying Australian customer experience (CX) consulting firm BluLeader and IT-as-a-Service advisory firm Virtual Clarity.

The units the company is looking to shed are responsible for roughly one quarter of DXC’s total revenues. The consensus is that DXC can reinvest the capital generated from the sales of those businesses into strengthening its core services.

Salvino, who took over his current position from Mike Lawrie who prior to the 2017 CSC/HPE Enterprise Services spin-merge was CSC’s chief executive, has worked in venture capital and as an executive at consulting firms including Accenture. What is clear now is that Salvino has his work cut out for him at DXC as he works to reverse the downward revenue trend and restore customer confidence.