Atos Looks To Sell Data Center, Communications To Focus On Cloud, Security: Report

‘The problem is that with the very strong move to cloud and the accelerating move to cloud that we described several times, this infrastructure is being underutilized much faster than the ability to consolidate those data centers. So there is here as well a very strong case for joining forces with partners to fill, if you like, those data centers and this infrastructure. So there is a very clear case and business rationale behind all that,’ says Elie Girard, Atos CEO and director.

Atos is reportedly looking to sell some of its legacy business operations in a move that will give the Paris, France-based global solution provider a chance to focus on developing its business in faster-growing parts of the IT market.

Bloomberg on Tuesday reported that Atos is exploring a sale of its legacy information technology business, including some outsourcing operations, as a way to divest some lower-margin parts of its business.

Atos may also be looking to reshuffle part of its management team, Bloomberg reported.

[Related: Atos Acquiring Visual BI With Eye On Business Intelligence, Cloud Analytics]

Elie Girard, Atos’s CEO and director, said Wednesday during its latest earnings call that the company is definitely looking to make some kind of change to parts of its businesses, particularly its legacy data center and unified communications and collaboration business, as it looks to expand its focus on its four strategic areas of digital, cloud, security, and decarbonization.

However, Girard referred to “partnering” during his remarks and when answering analysts’ questions in a way that made it unclear whether the changes will come from selling those businesses or partnering with a third party.

A company spokesperson, in response to a CRN request for more information about what Girard meant by “partnering” relayed that Atos’ ultimate goal is to focus its energy on what matters most to its customers, which is to create value for shareholders and improve the future of its employees.

All options are on the table, the spokesperson wrote. Atos is looking for partners for several data center hosting and associated activities that will allow it to enhance its service to our customers and concentrate its energy on areas that take advantage of its longstanding expertise in hybrid and multi-cloud management.

Girard said that revenue for the first half of fiscal 2021 fell 2.7 percent organically as customers accelerate their migration to cloud in the post-COVID surge and as its unified communications and collaboration business slows down, he said.

“In H1, the group faced severe headwinds on two legacy activities, classic data centers and classic unified communications, where the drop was respectively higher than what we experienced in the last years and larger than what we expected,” he said. “To a lesser extent, classic application development is on a slightly decreasing trend, and private cloud has stabilized.”

However, Girard said the company’s four strategic businesses--digital, cloud, security, and decarbonization--benefited from the economic recovery and the migration to cloud. That, he said, play’s well into Atos’ skills.

“The most complex migrations are yet to come,” he said. “And as the future remains hybrid multi-cloud, the acceleration requires more cloud orchestration. Then Atos is positioned with very strong differentiators in booming segments like cloud security, edge, and cloud compute. In the public cloud area and in cloud-native application development, our partnerships with hyperscalers are strengthening quickly ... and our growth in these areas is very substantial.”

Uwe Stelter, Atos’ chief financial officer, said in his prepared remarks that Atos groups its business activities into three buckets: classic infrastructure business including data center activities and hosting, unified communication and collaboration, mainframe, and networking; classic applications including business process outsourcing and non-cloud applications; and four strategic segments including digital, cloud, security, and decarbonization.

Atos’ classic businesses represented 54 percent of the company’s revenue in 2020, down from 62 percent in 2018, even as its strategic segments grow 10 percent on a cumulative annual growth rate of 10 percent, Stelter said.

In 2021, that shift accelerated, with strategic segments seeing growth of up to 15 percent while the classic infrastructure business declined 20 percent and the classic application and BPO business fell 3 percent to 5 percent, Stelter said.

“We expect that this trend will continue in all three segments into the midterm,” he said

To meet the changes, Atos has decided to accelerate the re-profiling of the group towards its digital, cloud, security, and decarbonization activities, Girard said.

He said the company will partner on data center hosting and associated activities to enhance customer service while improving the utilization of assets.

“Joining forces in a consolidating market will allow these activities to develop further technical expertise while conducting the required investments,” he said.

Atos also wants to transform its unified communication and collaboration business via a partner with strong software and telecommunication expertise and combining technical and go-to-market capabilities to bring scale and investment that will allow its clients to accelerate their move to UCCaaS and contact center as a service, he said.

Left unsaid was whether by “partner” Girard meant working with partners to develop those capabilities or sell them to a third party.

For instance, when asked by an analyst whether Atos would be open to disposing of those businesses, Girard said there has been consolidation in the unified communications area for a couple of years.

“There are a lot of synergies on product development, on the cloud migration, on customer bases to be achieved,” he said. “So there is, I think, a very strong case for joining forces in that space.”

On the data center side, Girard said, Atos is talking about the commoditized side of the business where it has very good but underutilized assets.

“The problem is that with the very strong move to cloud and the accelerating move to cloud that we described several times, this infrastructure is being underutilized much faster than the ability to consolidate those data centers,” he said. “So there is here as well a very strong case for joining forces with partners to fill, if you like, those data centers and this infrastructure. So there is a very clear case and business rationale behind all that.”

Later, when asked explicitly by another analyst whether by “partnering” he meant that Atos might sell the businesses or perhaps actually also buy other businesses to consolidate something like unified communications and then try to spin it off, Girard said that Atos is definitely not looking to make acquisitions in those areas.

“We want to reduce our exposure to those areas and increase our exposure to other areas,” he said. “Now on the modalities of this reduction of exposure, I‘m just saying that all options are on the table. But it’s very, very clear that we want to reduce our exposure to those areas of business.”

When asked by yet another analyst about the “specific forms of disposal of partnership” Atos wishes to pursue, Girard replied that he could not comment on specific timing because that would be detrimental to what he called are “basically M&A processes.”

However, he said, the assets in question have different natures within the business.

“Unified communications business is a business which stems out from the acquisition of Unify five years ago and has always been run separately,” he said. “So it‘s already carved out from the rest of the organization mostly, I would say. The data center hosting and related activities is much more entangled in the rest of the organization. So that needs, of course, some very operational work of carve-out, et cetera.”

When asked specifically about the unified communications and collaboration side of the business, Girard said the business still provides a significant revenue flow to Atos.

“You‘ve got some players who can really drive the move to the cloud faster because they wouldn’t have a large classic installed base and you could, for example, consider that they just leave out or stop maintaining the classic infrastructure,” he said.

Atos is serving a large customer base of 44 million seats, Girard said.

“So it‘s a very large customer base with a lot of value for any partner who would like to consolidate, in particular, everything related to R&D, maintenance, product development, which are always required even on the more legacy part because you need updates and new features all the time,” he said. “You have to, even if it’s not cloudified. So this is line of cost which is significant that you can’t just remove like that. And any other partner in this area would have the same line of cost and would [have to] manage to do massive synergies joining forces.”

Girard, in his prepared remarks, also addressed the accounting errors discovered in April in Atos’ U.S. operations. He said the company did a thorough review of the situation with its own personnel and external advisors and supported by auditors which did not reveal any material misstatement for the group’s consolidated financial statements.

To ensure such errors do not happen again, Atos has set up strong and comprehensive actions to remediate internal control weaknesses in North America and to prevent them from impacting other geographies, Girard said.

“To design and set up the plan, we were assisted by external advisers, including a U.S. legal firm,” he said. “The main actions in the plan cover the reinforcement of the organization on both accounting and finance with relevant internal controls, mandatory trainings within both finance and operations, as well as specific HR actions to ensure the right people are in the right place. Remediation and prevention actions will continue to be implemented as a rolling process, and I can tell you, awareness and caution on all those matters are very high throughout the group.”