In a move reminiscent of the departure of its consulting wing to CSC, Hewlett Packard Enterprise (HPE) announced a complex transaction involving a reverse takeover of legacy software specialist Micro Focus PLC of the UK. They described it as a spin-off and merger. First they will create a spin-out company named Seattle SpinCo Inc comprising all the many enterprise software assets HP has accumulated over the years. That company will then merge with Micro Focus, who will pay for the transaction with $2.5 billion cash and a 50.1% equity stake. The result, expected to complete late in 2017, will be a company half owned and with a majoority of the board selected by HPE but still run by Micro Focus’ existing management and headquartered in the UK.
HPE are not dumping everything on Micro Focus. They have decided the future of IT is “hybrid IT” and are keeping anything necessary to build hybrid IT solutions, including software-defined networking and storage and their significant investment in OpenStack-based cloud computing.
Micro Focus has a track record making good with legacy software assets and has quietly built a substantial business on it. Analyst Dana Gardner told me “I see powerful synergies among the combined ALM and DevOps asset portfolios. Also, the Vertica and IDOL (Haven on Demand) big data market potential strong for security, IoT, industry-specific analytics. And these can be on AWS and Azure. This big data business is a new and exciting growth area for Micro Focus.”
Significantly to this transaction, they previously acquired Attachmate and with them SUSE. That means HPE will become half-owner of a Linux distribution for the first time. The announcement states that SUSE will become HPE’s Linux-of-choice, a blow for the many Debian loyalists in the company but a big endorsement for the safe hands of SUSE CEO Nils Brauckmann, who has successfully rebuilt the company from the neglect it faced in Novell. It’s also a point of uncertainty for Helion and HPE will be keen to reassure customers.
HPE’s customers can thus expect to see a transition over the next few years to SUSE, coupled with a new wave of professionalism with any other HPE assets they own. Apart from SUSE, Micro Focus is dedicated to proprietary ways and especially to license monetisation, so now would be the time to make sure you could pass a Micro Focus software asset audit with flying colors.
The relationship with SUSE and Micro Focus could also drag along growth for HPE. Gardner told me “It’s not hard to imagine HPE’s storage, converged infrastructure and hybrid cloud SDDC hardware being a preferred partner and so sales and integration opportunities for the apps and data center modernization drives that both companies will want to steer to hybrid cloud models.“
That in turn implicates OpenStack. SUSE has been building a strong OpenStack bench that includes Alan Clark, the chairman of the OpenStack Foundation board of directors. HPE have also been building an OpenStack team and the announcement indicates they are working on some sort of joint venture around the combined skills. They say they will be ready to talk about it towards the end of the year, suggesting SUSECon as a venue for a joint venture announcement.
That may not be much comfort to HPE staff though. Word on the street is HPE are already earmarking whole teams for layoffs, so one of the ways Meg Whitman may make this work financially is through wholesale attrition, including the products that are staying. Micro Focus also know their legacy business well and it’s very likely that Seattle SpinCo will spend its year in transactional purdah thinning its workforce product-by-product to match their revenues. There will be some great staff on the market.
I’m looking forward to seeing full details but this looks like a big win and endorsement for the revamped SUSE team. As for Micro Focus, I have every confidence that they will make good with this; leveraging distressed legacy technology assets is their business and if anyone can make a profit from the accumulated detritus of decades of leadership failure and Autonomy-scale mistaken acquisitions by HP it’s Micro Focus executive chairman Kevin Loosemore.
So the only remaining question is whether HPE are right about software-defined Hybrid IT being the future. As technology veteran Professor Tony Wasserman of Carnegie-Mellon told me, “HP is best described as King Midas in Reverse where software is concerned. As with many other companies that sell boxes as their primary source of revenue, there is very little understanding of software in the executive suite.” Will this be the exception?