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Time to refocus

In a wide-ranging interview, Gonzalo Usandizaga, the Micro Focus channel chief, says it’s refocused and rationalised its business after some years of turbulence. It has a unique mix of legacy and newer technology, or, as he likes to say, it’s the ‘glue between the old and the new’. 

I interviewed Gonzalo Usandizaga earlier this year on his first visit to South Africa as global channel chief at Micro Focus. He was here to speak to partners and customers, and was en route to São Paul, and then Madrid for a quarterly business review before heading home to Dubai. He was also due to host the company’s partner conference in Amsterdam in March, but that was before the world went mad.

GONZALO USANDIZAGA, Micro Focus (Supplied) GONZALO USANDIZAGA, Micro Focus (Supplied)
Micro Focus has about 40 000 customers globally, of which roughly half can be found in EMEA.

Tracing the history of the company, he says there’s been both organic growth as well as acquisitions, of which there have been 17 in the last decade. A significant one was Attachmate in 2012, worth about $2.4 billion, but this was dwarfed by the $8.8 billion spin merger with Hewlett Packard Enterprise Software in 2016.

Five years before this, HP Software had bought the British software maker Autonomy for $11 billion. This, in hindsight, turned out to be a very bad idea, and saw HP write-down $8.8 billion related to the deal a year later. Usandizaga was employed by HP at the time and was one of three executives the company appointed to ‘fix the mess’. In the years since, there has been an enormous amount of litigation related to this ill-fated deal, but there was some sort of conclusion with the HP/Micro Focus merger as a much diminished autonomy returned to British control.

Meanwhile, the merger also threw up some difficulties.

Part of the problem was the fact of a smaller company acquiring a larger one; in this case, HP was three or four times larger. Micro Focus is also a pure enterprise software vendor, says Usandizaga, while this probably made up 5% of the business of HP Software, which was really more of an infrastructure hardware company.

This, he says, created a ‘cultural clash’, and the two businesses also didn’t share a common internal IT structure.

He admits: “I don’t think we were up to speed to have a really fluent integration. That created some problems. We sometimes had some issues invoicing customers, and when we had to renew maintenance contracts, we were late. Our systems were not working well. That was a problem for us, and it took about a year to get it fixed.”

Now, he says, the ‘internal IT stuff’ has been fixed.

“It’s been two years since the merger. I look after business in Russia, Central and Eastern Europe, Israel, the Middle East, Africa and South Africa, Brazil and Latin America, and I don’t see any problems. We have a clearer journey in terms of what we do, a clearer mission.”

Turbulence

Last year also brought some headwinds. It released its H1 results in July, which, as Usandizaga says, showed growth in profitability and revenue. It also increased its cash flow by 50% year-on-year.

And then, in August, it cut its outlook for full-year revenue to -6% to -8%, down from -4% to -6%. To say this didn’t go down well with the markets risks understatement; shares fell as much as 34% during trading in London.

Usandizaga believes the market ‘overreacted’.

“You couldn’t even call it a profit warning, because we didn’t release any warning about our change in EBITDA. It was just in terms of the outlook for the year.”

He also takes the long view of the company’s performance; its stock was $2 in 2008 and revenue was at $140 million; today, it has revenues of nearly $4 billion, but its stock price has taken a knock in recent weeks, like many other firms.
The company now has about 300 products in its portfolio, and he believes it’s time to take a step back.

“I think we need to do more strategic analysis on what we want to prioritise. Honestly, I think we have too many products today,” he says.

There will need to be some rationalising; it’s still offering similar solutions from both Micro Focus and HP.

“We’ve maintained both worlds since the spin merge. At some point, we need to come out with a new solution that will take the best of both legacy solutions and help us rationalise the portfolio.”

Hybrid future

It has now settled on four focus areas, into which it’s going to be putting most, if not all, of its investment. These are hybrid IT, enterprise DevOps, security, risk and governance, and predictive analytics.

As for priorities, it will now build analytics and security capabilities into all its products. An example of this is its ArcSight cyber security product and ArcSight Investigate.

Usandizaga says the market is also changing, such as the rise of DevSecOps.

“Before, there was security and there was DevOps. Now we see these two getting closer together. We’re building analytics into everything we do, and this will help our customers release applications more rapidly.”

He also sees hybrid IT as a strategic growth area, and one in which it’s also concentrating its R&D efforts.
The company’s view of hybrid IT is that it’s everything related to how it helps organisations optimise and manage their IT infrastructure. This includes monitoring and automation tools.
The company is also aware that the majority of its business is done with its current install base, and so it has an obligation as a vendor to continue to roll out new functionality for its products.

Usandizaga says he likes to think of the company as the ‘glue between the old and the new’.

While it’s not the kind of company that uses ‘the most fancy startup technology’, he says it remains committed to its customers in helping them modernise all their legacy applications and technologies.

“We never let a customer down because the technology is becoming a bit old-fashioned.”

Micro Focus certainly does look after some elderly technologies, such as its Cobol business (the technology of which recently celebrated its 60th birthday), as well as its Data Protector backup solution, which has also been around for 40 years.

What is the company telling customers that are considering cloud adoption?

Usandizaga says it has a strategic partnership with AWS and Azure, which guarantees its solutions are supported on those infrastructures.

With cloud, specifically private cloud, he says: “I don’t want to say we’re late, but we were probably a bit behind.”

He says some clouds appear to be more popular in certain regions: Azure is a major player in the Middle East because of the company’s massive investment in datacentres in Doha and Dubai, while some of the customers he’s met locally are on AWS.

Demand for encryption

What are customers struggling with?

“One of the main aspects they’re looking at is how they can deliver applications fast enough, in an agile way, but in a secure environment,” he says.

He’s also seeing increased demand for encryption solutions.

He says businesses have to accept that sooner or later, criminals will breach their firewalls and penetrate their networks. Its ArcSight product will help customers monitor and eliminate malware, “but the bad guys are always ahead of us, so you interviewhave to assume that at some point, they will reach your data, and if they breach it, the data should become useless to them.”

This is driving the increase in interest in encryption tools, particularly from its install base in South Africa.

And while its Cobol solutions are still an important part of its business, it’s a declining one.

He’s also been surprised at the maturity of automation solutions among South African customers.

“That shocked me. If I look across the region, there are countries where you see them more concerned with monitoring tools or backup or service management solutions, but automation, in this country, is well deployed and advanced compared to other countries.”

Advice for partners

Usandizaga has very clear advice for the company’s partners.

“Honestly, what I expect from them is that they get the level of certification and enablement that our customers expect them to have to deliver projects to the standards that we want.”

He says in the emerging markets, 87% of the company’s business is done through partners, and that they have all his support. I sense there’s a ‘but’ coming.

“But, and there is a but, this is not for free.”

He recounts meeting about a dozen customers, not in South Africa, ‘but in a different African country’, who told him they weren’t doing more business with Micro Focus because the local partners weren’t skilled enough, and that they believed any new projects would end in failure.

“My message to them (the partners) is that there is enough business in our install base. There are a lot of solutions that we have that will need to be migrated to new solutions. There’s going to be a lot of service business to our partner community. But, you have to be fully certified in our solutions, otherwise you risk our reputation as a vendor.

“If something fails, the customer is going to call me, not the partner. We’re willing to invest in the partner, but then, you have to certify your people and you have to deliver based on what your skills are. Don’t try to get what you can’t deliver. Stay focussed on your core business, whatever it is. If it’s automation, focus on automation, if it’s security, focus on security, if it’s predictive analytics, sentiment analysis solutions, then focus on that. Some partners think they can do a bit of everything. "No, our customers are getting smarter.”

Usandizaga says while it’s looking to expand its partner programme, with more investment from marketing development funds, more rebates and more referral fees, ‘partners need to be fully enabled, certified and guarantee that they will deliver projects according to our standards’.
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