DXC Technology plans to eliminate 4,500 positions and simplify management layers so it can more quickly respond to customer needs, said CEO Mike Salvino, who blamed an estimated US$2 billion “revenue runoff” on the company itself.
“Our revenue runoff was not caused by cloud trends prompting customers to move away from DXC. Instead, this runoff was due to suboptimal customer delivery and weakening customer relationships,” he told investors during a fourth-quarter earnings call Thursday. “As a result, we lost roughly US$1 billion of revenue in FY '20, and expect to lose a similar amount in FY '21.”
CRN Australia has confirmed that 150 jobs have been affected in ANZ.
In the US, DXC has been forced to cut its price on services and has lost customers over the last 12 to 18 months due to internal complexities that have hobbled customer delivery, he said. He expects the financial losses to continue into the first half of fiscal year 2021.
“We have too many people between our customers and the people doing the detailed work,” Salvino said. “This causes complexity and confusion. It also erodes profitability and shareholder value. By eliminating unnecessary layers, our people will be able to deliver for our customers faster, drive meaningful revenue growth and help deepen customer relationships.”
DXC is looking at cutting US$700 million in costs annually, with US$550 million set for this fiscal year.
“We expect roughly 4,500 people, or 3.5 percent of our workforce, to be impacted,” he said.
The company also is “taking the prudent step” of suspending dividend payments, said DXC CFO Paul Saleh.
“The pause in the dividend will give our board an opportunity to re-evaluate the appropriate dividend payout following the completion of our strategic alternatives,” he told investors.
Prior to the movement restrictions around COVID-19, DXC had sold its health-care business unit to Veritas Capital for US$5 billion, which it plans to use to pay down debt. It had also considered selling its workplace and mobility business. However, with rapid and high levels of demand for remote work solutions, Saleh said the company was “re-evaluating the value creation potential” of that business.
“We're seeing strong demand in the current environment as a number of customers are looking to enable their employees to work remotely. Our pipeline has increased by US$1 billion since the beginning of our fiscal year. As Mike [Salvino] mentioned, workplace and mobility has become an area of strategic importance for our customers in the current environment.”
For the fiscal year, DXC’s revenue dropped 5.6 percent to US$19.57 billion from US$20.75 billion. For the fourth quarter ended March 31, revenue was down 8.8 percent to US$4.81 billion in the most recent quarter from US$5.28 billion in 2019.
DXC stock tumbled US$2.00 on the news, with shares dropping 12.10 percent to trade at US$14.56 on Friday afternoon.