Micro Focus shares fall to 13 year low; CEO leavesMarch 23, 2018
By: Herman Eggink
This week, Micro Focus issued a revenue (and profit) warning for the remainder of the year. The company expects revenue to decline between 6 and 9 percent over a 12-month period ending October 31, compared to the previous estimation of a drop between 2 percent and 4 percent.
As a result of this Micro Focus share price dropped by 56% to 823 pence, the largest fall in 13 years. CEO and Director Chris Hsu stepped down with immediate effect. It is said by Micro Focus that Hsu “wants to spend more time with his family.”
What does this mean? Since there is so much foreign debt in the company, is the market losing trust in their ability to recover? This will no doubt mean further (and immediate) job cuts impacting innovation and customer service beyond what I mentioned in my post in September. A shame because so many of my former colleagues who transitioned into Micro Focus now need to deal with the resulting struggle. Bizarre to read that the “cost savings drive was ahead of schedule” in the same statement containing a higher than expected revenue fall.
Micro Focus’s executive chairman, Kevin Loosemore, said operational issues had led to a “disappointing short-term performance” but that he remained confident in the firm’s strategy. He told Reuters news agency: “We’re finding the integration harder than we’d anticipated or planned.”
Whilst operational excellence is obviously key (isn’t it always), customer value (through innovation) and customer service are paramount. Extending the life of legacy is not driving customer innovation nor customer service.
Customer centricity really should be KING, right?
Consequenses of the Micro Focus HPE reverse takeoverSeptember 12, 2017
Author: Herman Eggink, CCO Asysco
Let’s say you’ve chosen your “flavor” of Micro Focus COBOL and you’re currently enjoying the enhanced capabilities of COBOL programming, plus a reduction in cost compared to your previous mainframe licenses. Your plan was to stay in Micro Focus COBOL for at least a decade and that is your long-term strategy.
Now, nearly one year after Micro Focus and HP announced the reverse takeover of HP’s non-core software, the deal finally concluded on Friday, Sep 1st, 2017. According to the Financial Times, Micro Focus has made a virtue of buying legacy computer brands and wringing them for profitability by cutting costs. But the $8.8bn reverse takeover of Hewlett Packard Enterprise’s software assets is likely to prove more complicated.
In a recent interview, chairman of the board, Kevin Loosemore made it clear that the operating margin needs to improve from 21% to 45% in 3 years, as happened with all previous acquisitions (e.g. Attachmate). Loosemore said: “There are a lot of companies in this space that are trying to grow when they shouldn’t, as a result, they were running their businesses at half the margin that we run the businesses at. These old companies are often trying to invent the next big thing — but they don’t really know what that is.”
Whilst he may have a point regarding the growth and operating margin, isn’t this ultimately about creating customer value and ensuring you get paid fairly for the value you create? Doubling margin in 3 years for a company the size of HP is only possible through massive internal efficiencies where little optimization synergy exists pre-merger (the reverse takeover): less money is spent on R&D (longer-term issue) and less service and support will be available for existing customers (short term issue).
This will no doubt impact the smaller product lines such as … Micro Focus COBOL, a product that quite a number of their customers still rely on for the core of their organization.
Hardly any R&D is spent on legacy to begin with (less than 1% of the top IT company’s R&D budgets is used for innovating mainframes, COBOL and such, it all goes to x86 and ARM/mobile). In that sense, this reverse takeover is very likely to end up being a reverse value creator for their customers.
According to the Financial Times, one top-10 shareholder describes Chairman Kevin Loosemore as “more a private equity-type than a businessman”.
Do you really want to depend on a company that’s only about margin and is driven by a hunger for expansion?
“Our funding ability has increased now that we are bigger,” Kevin Loosemore said in an interview. “There is no practical cap in terms of the size of future deals.”