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HP Bids $1.6B For Datacenter Lead With Opsware

UPDATED: Looking to corral the market for automating tedious but vital datacenter tasks, HP today agreed to buy Opsware  for $1.6 billion in cash, a 38 percent premium over Opsware's Friday closing price of $10.28 a share.

In a separate deal, HP also bid to acquire thin-client computing software maker Neoware  for $214 million, a 6 percent premium of its Friday closing price of $15.24.

Opsware's software is expected to help HP provision servers, networks and storage devices, and manage any changes in those resources to help companies reduce upgrades normally completed with manual labor. Reducing human labor in turn helps cut costs and improve service levels by minimizing the downtime associated with human error.

Such jobs, including providing patches and upgrading software to newer versions, is a dull but necessary part of IT that helps businesses hew to the auditing tasks associated with corporate compliance regulations, including Sarbanes-Oxley and HIPAA.

Thomas E. Hogan, senior vice president of HP Software, said Opsware's datacenter automation portfolio will enable HP to address customers' "explosion in complexity" associated with the doubling of new network, server and storage devices every five years.

"Combining these automation assets with the rest of the strength of HP's software portfolio provides customers with what we would describe as the trifecta of capability," Hogan said on a conference call.

In the broader view, Hogan said HP will use Opsware's assets with its existing IT management software, cobbled from previous buys of Mercury Interactive, Peregrine Systems and SPI Dynamics, in order to boost its business technology optimization (BTO) portfolio.

Should the deal close by the end of HP's fourth quarter, Opsware will become part of the HP Software business. Opsware CEO Ben Horowitz will lead HP's BTO organization, reporting to Hogan.

While HP appears be the winner in the Opsware sweepstakes, rivals IBM and BMC should also be seen as bidders in the Opsware market. After all, automating the IT operations in a datacenter is right in all three companies' bailiwicks.

On sheer financial resources, IBM would be the most likely candidate to block HP's bid, especially now that HP will have the resources to try to overtake IBM's leadership position in the server provisioning space.

In a question and answer session with media and analysts after the call, Hogan declined to comment about whether he expects IBM to counter HP's bid.

He did say that while HP competed in the server automation market versus IBM and Opsware, the "ratio of deals where Opsware was the lead competitor and ultimately the winner from our perspective dominated the presence of IBM."

"We believe that Opsware has the market leading solution and how IBM might react or respond to this is unclear to me and something you'd have to ask them," said Hogan, responding to a question from an internetnews.com reporter.

IBM declined to respond to questions regarding a counter bid.

Opsware, co-founded by former Netscape Communications wunderkind Marc Andreessen, began life in 1999 as a managed service provider called Loudcloud.

In 2002, Andreessen sold off the managed services division to Electronic Data Systems Corp., and Loudcloud was eventually reborn as Opsware, focused on automating datacenter tasks.

Opsware has been growing steadily. Earlier this year, IDC ranked the relatively young company No. 2 next to IBM in the server provisioning market. Server provisioning is a slice of the overall server automation market IDC claimed will top $10.4 billion in a few years.

Signs that Opsware was being pursued were unmistakable since March.

The company bought IT operations automation startup iConclude for $51 million and reported that full year revenue for 2006 totaled $101.7 million, up 67 percent from a year ago.

A week later, the company held a high-profile analyst meeting in New York to discuss in detail the state of the business; afterward, Horowitz and Andreessen met individually with the press in a bid to hammer home Opsware's viability.

Meanwhile, HP expects to acquire Neoware's assets by the fourth quarter to add Linux software, client virtualization and customization capabilities for the business desktop unit of HP's Personal Systems Group.

Neoware's thin-client devices attach directly to servers, eschewing the PC in what experts believe is a less expensive alternative to PC computing.

Neoware adds a Linux-based alternative to HP's thin clients, which are based on Microsoft Windows XPe and Windows CE, and will complement the systems vendor's blade PCs, blade workstations, virtual desktop infrastructure and server-based computing.

HP said in a statement it plans to "leverage the acquisition to remain an industry leader in reducing its environmental footprint through reduced noise, power and packaging versus desktop PCs."