Hewlett-Packard Opts for Opsware

With its plan to acquire Marc Andreessen's data management company, HP bulks up its software side in an effort to stay ahead of IBM

Even as it furthers its lead in the personal computer market, Hewlett-Packard (HPQ) is also fulfilling its pledge to bulk up its tiny but rapidly growing business in corporate software.

HP's plan to acquire Opsware (OPSW) for $1.6 billion, announced July 23, marks the latest in a series of acquisitions designed to widen the company's product lineup as it seeks to compete with corporate-software leader IBM (IBM). Also on July 23, HP said it plans to acquire Neoware (NWRE), a maker of "thin client" computer systems, for $214 million.

Founded by Netscape founder Marc Andreessen, Opsware makes software to help large companies automate their data centers. For companies with existing data-center software from a range of vendors, Opsware's technology can help those applications work together more smoothly, says Rob Enderle, analyst at researcher Enderle Group. "There's clear value in that."

The acquisition "arms HP's sales force with even more competitive software solutions, and the goal is to unseat IBM," says Samir Bhavnani, research director at Current Analysis West. "Because of the increasing amounts of data and servers in centers, you need something that can automate it all," says Bhavnani. "The more you can automate it, the lower the cost."

Software and Sales

HP's software unit is already seeing accelerating sales. In the first half of HP's fiscal year, which ends in October, software revenue increased 69% to $1.07 billion. That's a big step up from the 24% growth rate HP posted in that segment during the same period a year earlier. Operating profits from that business jumped sevenfold to $89 million for the most recent six-month period. Still, software sales are dwarfed by revenue from sales of PCs, printers, other hardware, and computer services, accounting for just 2% of HP's six-month tally of $50.6 billion.

Hewlett-Packard, based in Palo Alto, Calif., outran IBM as the world's largest technology company in its last fiscal year, with total revenue of $92 billion. But to fulfill its goal of 4% to 6% annual revenue growth, HP needs to identify at least $3.7 billion in new sales. To that end, HP has been buying software companies and investing in the data management business. Notably, the data center is the focus of another HP effort called Neoview that helps businesses mine and analyze large amounts of information (see BusinessWeek, 4/30/07, "HP Sees a Gold Mine in Data Mining"). HP's other recent software acquisitions include last year's $4.5 billion purchase of Mercury Interactive and the 2005 takeover of Peregrine Systems for $425 million.

The acquisition of Neoware, meanwhile, adds to the company's existing thin-client business. Thin clients are small, stripped-down computer workstations that don't store or process data, relying on a central server instead.

Once HP digests Opsware and Neoware, analysts expect it to continue to seek out still more acquistions. "They're looking for holes in the product line and will acquire technology to fill those holes," says Enderle.

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