HPE is spinning out its huge services business and merging it with CSC

HPE said the "spin-merger" would create a pure-play IT services company with US$26 billion in annual revenue. It expects to close the deal by March 2017.

It's the latest step in an effort to turn around one of Silicon Valley's oldest companies. Just last year, Hewlett-Packard split itself into two vendors, with HPE selling data center products and services, and HP Inc. selling PCs.

Now, HPE is slicing itself up further, betting again that a smaller core company will be able to move faster and attract new business in a world increasingly dominated by the cloud.

In a statement, HPE CEO Meg Whitman said customers would benefit from a "stronger, more versatile services business."

HPE shareholders will own approximately 50 percent of the new, combined company. Whitman will sit on its board and Mike Lawrie, CSC's president and CEO, will be president, chairman and CEO. The remaining board of directors will be nominated half by HPE and half by CSC. 

Merging the services businesses will lead to cost savings of about $1 billion in the first year, HPE said, though there will also be costs involved in spinning off its services division.

HPE announced the news along with its financial results Tuesday.