In a blockbuster announcement ahead of its earnings call on Tuesday, DXC unveiled a newly forged partnership with Amazon Web Services to deliver IT migration, application transformation, and business innovation to global enterprise clients.
According to the announcement, DXC - AWS Integrated Practice will offer clients secure, cloud-first solutions that combine the breadth and depth of cloud services offered through AWS with DXC enterprise services to enable them to innovate in their industries, be more agile, and better adapt to dynamic market conditions with speed and at scale — while also modernizing their operations for a digital era.
"For many years, successful enterprises have relied on DXC's expertise to manage their IT," said AWS CEO Andy Jassy in a statement. "This agreement represents a commitment for both DXC and AWS to make it much easier to enable long-time and newer DXC clients to take advantage of the Cloud with the most functionality, the most innovation, the largest partner ecosystem, and the most experience at helping companies run at scale"
DXC CEO Mike Lawrie announced company earnings for its first quarter ending 30 June of US$5.28 billion, up 0.9 percent from the year-ago quarter. Net income came in higher than the same quarter a year ago, US$266 million versus US$173 million. DXC shares were up almost 2 percent on Wednesday morning, trading at US$88.72.
Positioned for the future
During the question and answer portion of DXC's earnings call, Lawrie talked about how DXC's partnership model with organisations such as Salesforce, Microsoft, and now AWS, positions the company well for the future.
Lawrie: "We do think this is a major differentiator. This is not only a business imperative but a labour of love. What separates this from others is, one, we can offer the best solutions that the industry has to offer. We are not beholden to anyone.
"Point two, all of our offerings, whether it be our analytics offerings or our workplace or our mobility, all of those solutions are built with our partner's technology and solutions. What we do is we integrate them into an end-to-end solution that we then jointly, and I underscore the word jointly, take to market.
"In many of our engagements, the client really can't differentiate between us and the partner. And we have found that when we are fully integrated as one team in front of the client, our win rates are significantly higher.
"It gives us the access and visibility to more opportunities than we could see with our own sales force, because now, we have other sales forces that are seeing those opportunities and are bringing us in. In some cases, we're jointly paying our integrated teams as if they were one. So this is not only for our existing clients but it's also for new clients. And this helps us attract new clients, which is critical to our growth plans over the next couple of years as we continue to moderate the ITO business and move into new areas."
All of the benefits, none of the risks
Lawrie said by striking deals with industry leaders like AWS, DXC has the ability to offer customers the latest in software and solutions, without the cost of investing in the creation of that technology.
Lawrie: "The other thing that this partnership model brings is innovation. So we are constantly refreshing our capability, and we're leveraging their R&D spend. Our margins can't sustain huge R&D investments. Now we're investing in things like Bionix and some of the other things we've talked about, but the Microsofts and the AWSs and the HPEs spend billions on R&D. We can leverage all of that R&D, integrate that capability and jointly take that to our clients.
"The AWS practice is an integrated practice, meaning we will be using AWS people as well as DXC people, and we will jointly and seamlessly go-to-market in accounts where we jointly decide to go. And we'll go as one integrated team to help those customers not only modernize their infrastructure but more importantly, move their applications to that modernised infrastructure.
"That's where the cost savings are. I mean, it's one thing to build a cloud, that's interesting. What's really important is moving the applications, the remediation, in many cases, the elimination as well as the building of cloud-ready applications. That's where the savings are. That's where the process changes are. That's what we mean by the digitisation of the modern enterprise."
The 'cannibal' you know
Lawrie has in the past complained that AWS and Azure are taking ITO clients away from DXC. An analyst asked him if the deal with AWS exacerbates that dynamic.
Lawrie: "Well, first of all, it does cannibalise the ITO business. But in my way of thinking, you've got two choices. You're going to let somebody else cannibalise you or you can do it yourself. We're doing it ourselves. What is unique about what we're doing with Microsoft and what we're doing with Amazon is we're also going in and beginning to move applications. And that application movement is essentially net new business for DXC.
"We're doing some of this with Deutsche Bank. So we will go in and we will work on not only providing a more modernised IT infrastructure around cloud but then moving the applications that can take advantage of that lower-cost, more productive, more nimble as-a-service infrastructure. So our long-term revenue model is to do this ourselves and, in the process, take on this additional workload around applications, and over time, give us growth as opposed to just a steady declining ITO business.
"So in short, what we're doing here, is we are proactively engaging with our clients as opposed to waiting for them. And this is a critical part of what I'll call this multi-cloud strategy. I mean, not everyone is going to put all of their workload on a public cloud. And most large enterprises, they have a combination of private clouds and public clouds. And what we're doing with AWS is to bridge that. So we have private cloud offerings, but now, we've got very strong integrated cloud offerings with AWS and Microsoft Azure and VMware and others."
More to come
Lawrie described the AWS partnership as being similar to deals the company has in place already with Microsoft and VMware. He said he also expects similar deals in the future.
Lawrie: "We already have this in place with Microsoft Azure. We have this in place with VMware. We're beginning to work with Google and others. So yes, I think you can assume that over time, we would do similar things. And again, this is my point about being an independent services provider as you can work with all these. And frankly, our clients are going to have multiple clouds. They're not going to have one. Not only going to be public and private, they may have multiple public clouds. They may have multiple private clouds. So you're making the case for why an independent, at-scale services company is so important as we move into this next phase of the industry."
Steady as she goes
While the press announcement described this as a potential, multi-billion dollar deal, Lawrie does not expect the AWS partnership to reap those returns soon.
Lawrie: "In terms of the size, I don't know. We've got a business case that we've put together that's candidly fairly modest in the first year. We've got to scale up. We've got to hire. We've got to build a management system around this. We've already got a pretty good pipeline so we'll see how that progresses and closes over the coming quarters. Yes, I think this will start out modestly and grow over time. But I think this is a US$1 billion-plus opportunity over time. Not the second quarter."