10 Things You Need To Know About The New DXC Technology

'Ready To Go'

Executives with DXC Technology – the new name for the solution provider giant formed by the merger of CSC and the Enterprise Services group of Hewlett Packard Enterprise – introduced investors Wednesday to the new company, which will debut Monday "ready to go," according to Chairman, President, and CEO Mike Lawrie.

Executives forecast a first-year revenue range of $24 billion to $24.5 billion. When the merger was announced in May 2016, Lawrie called it a "natural first step" in the restructuring plans for both CSC and HPE, spurred by losses from both companies' traditional IT outsourcing clients that stopped doing business with them or wound down contracts.

Click through to read 10 things about DXC that were presented to investors Wednesday.

3 Strategic Priorities

DXC executives outline three strategic priorities that they see driving their business through 2020, starting with a focus on businesses' digital transformations by combining DXC's offerings with those of its vendor partners. Lawrie said CSC invested $500 million in its digital offerings in its last two fiscal years and made a "huge" investment in partners that could help them deliver, such as Dell, Microsoft, HPE and Amazon Web Services.

The second priority is to invest in and grow the company's "next generation" talent, focusing more heavily on the skills – both inside the company and outside contractors - that can deliver digital transformation projects.

Finally, DXC is aiming for "stable" revenue growth, targeting 1 to 4 percent annually through 2020; "sustainable" margin expansion that will allow it to invest in its digital offerings and assets; and a "disciplined" approach to capital allocation that will allow it to reinvest in the business and drive a 30-percent return to shareholders.

Cultural Shift

Both the CSC and HPE Enterprise Services brands "were sort of tired," Lawrie (pictured) said. "But more importantly, we're signaling [that] this is about the future. This isn't about just cost takeout. This is about building a leadership position in the industry, not a 'me too' position."

"CSC was 'me too' for a lot of years and even [HPE ES] within the HP construct was a captive channel distribution for technology," he added. "This is about something entirely new and this is one of the biggest cultural shifts that we have … to start thinking as a leader."

DXC's capital allocation plans underscore that commitment to that shift, Lawrie said.

The Digital Focus

How important is a digital transformation in business? More than two-thirds – 68 percent - of companies recently surveyed by PwC said their CEOs are "active champions" of the strategy, according to Chris Curran, chief technology officer for PwC – and the only non-DXC executive to address investors Wednesday.

But only 38 percent of digital transformation projects are delivered on time, Curran added, which creates a "huge opportunity" since many businesses don't have the skills in-house to get the job done.

"Skills is the number one challenge that we have right now," he said, "figuring out how to get them, how to build them, how to partner for them, how to get them rapidly."

The PwC study also found that most businesses in such technology-intensive industries as financial services, health care and energy do not have the talent for digital transformation and are not ready to pursue it.

DXC sees a combined annual growth rate in the digital market of 25 to 30 percent by 2020, with a total addressable market of more than $90 billion.

DXC Today Vs. CSC The Past

The focus on digital transformation represents a chance to drive more revenue from the CSC installed base, Lawrie said in response to a question.

"Five years ago, we had nothing to cross-sell," he said. But today, with the digitization of business processes, "we can transform and then use that as leverage."

"We can go into" a company and say 'I can help you fund your transformation program.' We couldn’t do that before."

Changing Up The Talent Mix

DXC's focus on digital transformations will mean a shift in its talent mix, it said in its presentation to investors. Today, 75 percent of the company's current roles focus on more traditional technology solution delivery and the remaining 25 percent on "next generation" technology. Some of those roles are solution architects, Agile project managers and DevOps engineers.

But by 2020, those next-gen roles will comprise about half of the DXC workforce. For example, Steve Hilton, executive vice president of global delivery, believes data scientists will become more prominent in the company.

Financial Targets

While DXC forecasts first-year revenue of between $24 billion and $24.5 billion, it also projects gross earnings of between 11 and 12 percent, and 14 to 15 percent over the next three years.

It also forecasts first-year non-GAAP earnings per share of between $6.50 and $7 and a roughly 20 percent combined annual growth rate in EPS through 2020.

Possible Future Acquisitions

As part of its revenue growth strategy, DXC plans to execute targeted, "tuck-in" acquisitions that can expand its digital offerings, Lawrie said. He wasn't more specific, although he said they would account for 1 to 2 percent revenue growth by 2020.

The planned acquisitions take up only a minor part in a "disciplined" capital allocation approach by DXC over the next three years, in which about 30 percent of capital would be returned to shareholders through dividends and stock repurchases.

All of that depends on "successful execution," Lawrie told investors.

Streamlining The Organization

Lawrie said the merger creates some initial "dis-synergies," but officials are planning to streamline the organizational structure through several moves, such as the consolidation of redundant roles and improving productivity through automation.

DXC also plans to cut its estimated 15,000 suppliers in half by 2020 and cut about $9 billion in "addressable" spend, such as contract labor and technology. In its supply chain alone, the company is targeting $300 million in first-year savings and $750 million through 2020.

Real Estate Planning

DXC plans to streamline its use of facilities and data center footprint to save $100 million during the first year.

The company will assess its use of what it calls "in-country low-cost delivery centers" and plans to cut from 17 to eight the number of its low-cost centers around the world. But Lawrie said the company would "most likely" add a center in the United States. He said the company is looking at three states for the site and has begun the negotiation process," he added.

DXC wants to drive more work to its low-cost centers. It plans to scale low-cost locations, get out of "low utilization" sites and build "high impact" centers in strategic locations around the world.

Wider Margins

As part of their plan for sustainable margin expansion, the DXC executives believe management can wring out $1 billion in first-year savings, with 70 percent of that coming from workforce optimization measures and finding supply chain efficiencies.

But in the third year, fiscal year 2020, DXC projects that those same two areas will drive more than 82 percent – $1.85 billion – of a projected $2.25 billion in cost savings.

In each of those years, the company plans to re-invest 15 to 20 percent of that savings in the business.