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Hewlett Packard Enterprise Gets Boost on IT Services Spinoff Plan

Hewlett Packard Enterprise shares rallied almost 7 percent Wednesday in the wake of the tech giant's latest quarterly report and plans to spin off its business-services division in a deal valued at $8.5 billion.

By Rex Crum, East Bay Times

Hewlett Packard Enterprise shares rallied almost 7 percent Wednesday in the wake of the tech giant's latest quarterly report and plans to spin off its business-services division in a deal valued at $8.5 billion.

That deal will leave Hewlett Packard Enterprise in charge of business-related hardware products such as servers and data-center storage. The company's IT services operation, and its 100,000 employees, will merge with Computer Sciences, already one of the largest consulting and services companies in the tech sector. The merger is expected to be completed by March 2017.

Chief Executive Meg Whitman called the spinoff and merger with Computer Sciences "the right next step for Hewlett Packard Enterprise and our customers."

The move also continues Whitman's efforts to slim down what was once considered the original tech startup. In late 2015, Whitman oversaw HP splitting into two companies, Hewlett Packard Enterprise, and HP Inc., which is responsible for PC and printing-technology products.

Several analysts that follow Hewlett Packard Enterprise said the company's plans, and results, show that Whitman isn't backing away from her efforts to streamline operations and focus on the company's strengths.

"In slimming down, Hewlett Packard Enterprise is really going opposite Dell and EMC," said Steven Milunovich, of UBS. "Whitman emphasized her belief in focus, which has been our mantra, so it's hard to disagree. It sounds like the sales and marketing efforts, long an HP weakness, are much improved."

At Morgan Stanley, analyst Katy Huberty said spinning off its services operations allows HP Enterprise to focus its hardware and server offerings on "new growth markets" such as private cloud computing.

While most of Wednesday's attention focused upon its business-services spinoff plans, the company also reported fiscal second-quarter results that suggested business is doing well under Whitman's recent efforts.

The company reported a profit of 42 cents a share, excluding one-time items, on $12.71 billion in revenue, while analysts surveyed by Thomson Reuters had forecast the company to earn 42 cents a share on sales of $12.34 billion. For its fiscal third quarter, the company expects to earn 42 cents to 46 cents a share, while analysts forecast earnings of 48 cents a share.

©2016 the Contra Costa Times (Walnut Creek, Calif.) Distributed by Tribune Content Agency, LLC.