DXC CEO Mike Salvino: Global Business Services Now Our ‘Majority Revenue Source’

‘Consistently growing this high-value [Global Business Services] business and having it become the majority revenue source of DXC is important to our overall growth strategy. As you can see from the results this quarter, we’re delivering on that goal,” says Mike Salvino, DXC’s chairman, president and CEO.

DXC Technology Wednesday declared continued success in its move to transition its business from a focus on infrastructure to a focus on solutions despite a drop in second fiscal quarter 2024 revenue and earnings and said it is looking forward to improvements thanks to several high-level executive hires.

DXC saw only a slight 0.2 percent year-over-year drop in sales in its Global Business Services, compared with a 6.8 percent drop in its Global Infrastructure Services, said Mike Salvino, chairman, president and CEO of the Ashburn, Va.-based global solution provider.

Global Business Services grew organically for the 10th consecutive quarter in the second fiscal quarter and now accounts for 49.7 percent of DXC’s total revenue, Salvino Wednesday told financial analysts in his prepared remarks during the company’s second fiscal quarter 2024 financial conference call.

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“As we have stated repeatedly, consistently growing this high-value business and having it become the majority revenue source of DXC is important to our overall growth strategy,” he said. “As you can see from the results this quarter, we’re delivering on that goal. The 2.4 percent organic revenue growth was moderately ahead of our growth expectations for the quarter [due] to the stronger performance across all three [analytics and engineering, applications, and insurance software and business process services] offerings.”

Another key attribute of DXC’s growth strategy is selling its Global Business Services offerings to its Global Infrastructure Services customers, Salvino said.

“On a yearly basis, we generate roughly $370 million in revenue by selling analytics and engineering to our GIS [Global Infrastructure Services] customers,” he said. “And this is growing 11 percent in FY24 so far. … Another example of us having the right model and the right leader is our applications offering, which generates roughly $1.2 billion of revenue by selling to GIS customers.”

DXC’s Global Infrastructure Services business moved slightly in the right direction during the second fiscal quarter with a 9.1 percent revenue decline over last year compared with a 9.9 percent decline in the second quarter, while margins increased to 5.8 percent, compared with 5.2 percent, Salvino said.

Like Global Business Services, all three Global Infrastructure Services offerings—security, cloud infrastructure and information technology and outsourcing (ITO), and modern workplace—performed better than expectations, Salvino said.

To improve ITO, DXC is moving to an infrastructure-light model focused on selling facilities, which expected to generate about $200 million of cash before the end of fiscal 2024, he said.

“This will allow us to sell underutilized assets, making us more efficient overall and helping us fix the margin of the GIS business moving forward,” he said. “We recently have signed a deal to become the partner of choice for AWS. This partnership incentivizes us and our customers to move their systems that are essential to their operations to the cloud. We plan to use that deal to move some of our customers that are using a data center that is on-prem and sub-optimized to the cloud to improve the cost economics for our customers and ourselves.”

DXC has also made major changes to its executive suite, Salvino said. The company in September hired Howard Boville, a former IBM and Bank of America executive, as its new executive vice president focused on applications and DXC’s AI strategy.

A month later, DXC hired Andrew Wilson, former chief digital officer at Microsoft and former Accenture CIO, as its new executive vice president and global lead for its modern workplace business.

The two joined Robert Del Bene, DXC’s executive vice president and CFO, who joined the company in June.

“[These new executives] strengthen our ability to run our offering-based operating model to consistently deliver on our financial commitments,” Salvino said. “Howard, Andrew and Rob mark three senior executives with significant senior management experience and expertise in critical parts of our business that have joined us to play key roles for DXC alongside the other talented members of our senior leadership team. … These three bring deep customer industry relationships to DXC and the ability to attract top talent to help us deliver on our financial targets.”

For it second fiscal quarter 2024, which ended Sept. 30, DXC reported revenue of $3.44 billion, down 3.6 percent from the $3.57 billion the company reported for its second fiscal quarter 2023.

This includes Global Business Services revenue of $1.709 billion, essentially flat from last year’s $1.713 billion. That included analytics and engineering revenue of $561 million, up from $524 million; application revenue of $762 million, up from $755 million; and insurance software and business process services revenue of $386 million, up from $363 million.

It also includes Global Infrastructure Services revenue of $1.73 billion, down from last year’s $1.85 billion. That included security revenue of $109 million, up from $108 million; cloud infrastructure and IT outsourcing revenue of $1.21 billion, down from $1.31 billion; and modern workplace revenue of $409 million, down from $436 million.

Total revenue was in line with analyst expectations, according to Seeking Alpha.

DXC also reported GAAP net income of $99 million, or 49 cents per share, up from last year’s $27 million, or 12 cents per share. On a non-GAAP basis, the company reported income of $143 million, or 70 cents per share. That is down from last year’s $175 million, or 75 cents per share.

Non-GAAP earnings beat analyst expectations by 2 cents per share, according to Seeking Alpha.