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Straight Talk Service Provider

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A new wave of consolidation among IT service providers has washed over the industry in the last six months, with two “new” providers emerging, eager to demonstrate their integrated portfolios and differentiated competitive positioning. The motivations behind these consolidations differed, but one end result is the same: Enterprise customers now will have two reborn providers as potential partners in an increasingly crowded field of IT services and digital transformation offerings.

DXC Technology, the new company formed by the combination of Hewlett-Packard Enterprise (HPE)’s spun-off services unit and CSC, launched on April 3 after almost a year of integration planning. The new company reports that it has annual revenues of $25bn, almost 6,000 enterprise and public sector clients, and 170,000 employees. Prior to the “spin merger” announcement, both companies had spent previous years cutting costs and streamlining operations, while facing flat or declining revenues in some sectors – which ultimately led leadership at both companies to determine that a merger would result in a stronger, more focused competitor. The companies estimated that there was only 15% overlap in revenue streams from their top 200 customers, providing many opportunities for growth for a combined company. DXC Technology is moving forward with a global focus on newer digital-transformation-based services in cloud, security, application services, mobility, and BPO throughout multiple vertical industries.

NTT Data Services completed its acquisition of Dell Services in November, with estimated combined global revenues of $16bn, more than 100,000 employees, and a presence in more than 50 countries. Dell decided to sell off its growing services business in part as a way to pay for its acquisition of EMC. NTT Data has for years pursued global growth through acquisition, and adding Dell Services’ capabilities results in a stronger North American presence, not to mention deep IP and expertise in two flagship verticals – healthcare and financial services. NTT Data Services says there was only a 10% overlap between the companies’ customer bases. Digital transformation will take center stage in the portfolio, with an emphasis on digital and applications services, cloud, infrastructure and security services, and BPO. Prior to the acquisition, Dell Services had done a solid job in building up its digital and application services capabilities, on which NTT Data Services is basing the combined entity’sgo-to-market model.

Although the circumstances surrounding these deals differed slightly, the reborn companies ultimately plan to deliver new synergies and improved levels of flexibility and agilitythat they would have struggled to achieve as quickly and as effectively on their own in the current market. What’s more, these providers – specifically HPE’s services unit and Dell Services – are no longer beholden to promote or sell the hardware and infrastructure offerings from their respective parent companies, though of course they will honor previous contracts. By letting go of the primary links to their parent companies, both DXC Technology and NTT Data Services have the benefit of positioning themselves as agnostic and independent service providers, making recommendations for infrastructure and other developments based on what’s truly best for the customer – even if the new providers end up selecting HPE and Dell equipment in new engagements anyway.

Consolidation in the IT services industry is nothing new, but acquisitions of this size and scope are becoming rare, with many companies having opted for smaller acquisitions or partnerships to achieve scale and regional presence or to gain access to new digital services. Consolidation such as this also doesn’t automatically result in less customer choice, as long as the consolidated companies provide real alternatives for customer investment. In this case, the end result is that customers can look at DXC Technology and NTT Data Services as two new potential partners – both promising to beleaner and more agile, and focused on enablingdigital transformation, which is top-of-agenda among many enterprise customers today.

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