Debt repayment challenges ?

The CFO on the latest conference call: "Through December 31, we've generated approximately $150 million of cash through dispositions and sale of other assets with line of sight to additional transactions. As a reminder, these proceeds are not included in our reported free cash flow. As a result of our strong free cash flow generation, asset sales, and debt reduction over the first nine months of the fiscal year, we have lowered net debt by more than $750 million to $2.1 billion. With approximately $1.7 billion of cash on hand, we have delivered on our objective of strengthening our capital structure, and we'll update our capital deployment priorities as we enter the new fiscal year."

It's too early to say that DXC hasn't capitalized on Generative AI : they have a partnership with ServiceNow and they've been setting up Gen AI centers of excellence for some partners. They even cite one of these centers as leading to a 10x increase in fees on the account. I would also point to the recent Gen AI deal with the European Space Agency.

That aside, DXC's revenue declines predate the Gen AI story by at least 6-7 years. The first phase can be summarized by horrid management under Michael Lawrie which lead to a deterioration in service quality. This triggered an exodus of customers but the irony here is DXC has such a strong death grip on customers that migration takes years to complete. So customers slowly moved away from DXC and this caused huge long term headwinds.

The second phase under Mike Salvino is characterized by improved service delivery quality but a failure to adress major structural issues such as DXC's employee moral, multiple legal entities, multiple ERP systems, poor sales structure, cloud migration and towards the end higher interest rates.

Setting the structural issues aside because their effect is obvious, the cloud migration story caused big headwinds for DXC's GIS buisness. Sabre is a perfect example they had 17 data centers 3 of which where owned by DXC outright. These data centers where shut down and moved to Google cloud meaning all that datacenter outsourcing work disappeared. This is just one account in North America and as you can imagine this has happened all across DXC's GIS portfolio.

In GBS (excluding insurance) DXC was growing up untill recently, so what happened? In my opinion higher interest rates have caused a slow down in customer projects. This is because a big part of GBS is project work that aims to make organizations more efficient. Typically buisnesses borrow money to do these projects and if the interest rate is lower than the ROI on the project then the customer borrows the cash and triggers the project. Higher rates mean higher borrowing costs and thus less projects. You can see this effect at DXC's peers EPAM is an obvious example.

Customers getting used to higher rates and a slowing of cloud migrations will equate to DXC growing revenue. The recent outsourcing deal with Skanska is a very good early sign. This is an organization that is voluntarily choosing to become 100% operationally dependent on DXC even transferring IT employees. I think this partially drove DXC's 1.5 book to bill in GIS for Q3.

Furthermore this deal was led by DXC's EMEA leader Juan Parra who was promoted from being the DXC Iberia lead. As Iberia lead Parra turned DXC into the #2 IT company in spain behind accenture despite all of the chaos in DXC's early years. His promotion to head of DXC Europe (the largest region by revenue) will lead to sales growth there. We are not far away from revenue break even in my opinion