Software Ducks Lining Up Nicely for HP

When HP reported strong quarterly results earlier this week, analysts and reporters credited the usual suspects. And rightly so.

The company’s bread-butter computer and printer divisions did well and CEO Mark Hurd continues to win kudos for cost-cutting moves he’s implemented since coming over from NCR.

But there was even more good news in the numbers: a big uptick in software revenue. HP  reported $318 million in software sales for the quarter, a 30 percent increase year-over-year. HP’s OpenView management software led the way, with sales increasing 34 percent.

“Software has been one of the great unknowns at HP the past few years,” Charles King, analyst with Pund-IT, told internetnews.com. “The company has executed pretty well the past few quarters, especially on the enterprise side where it lost its way a bit when Carly [former CEO Carly Fiorina] was in charge.”

But King points out HP’s operating profit for the quarter in software was “only” $13 million and the company faces a formidable competitor in IBM,  which generates over $4 billion software revenue annually.

HP said its recent purchase of Mercury Interactive is expected to boost the company’s software revenue to over $2 billion annually.

Mercury will add application management, application delivery and IT governance software to HP’s OpenView line of server, network and IT service management software.

“We’re jazzed,” David Gee, vice-president, software, worldwide marketing at HP, told internetnews.com.

“Mercury is a major acquisition, a game changer for us. We’re getting a tremendous group of people and some great leadership and a big portfolio of applications.”

He noted Mercury’s core franchise in application development and testing are areas HP hasn’t had much of a footprint in. “It’s a different set of customers than we traditionally talk to,” said Gee.

With Mercury and some of its other acquisitions, HP can take on a more complete set of portfolio management applications from testing, to production, management and the eventual retirement of applications.

“Forward thinking CIOs understand no application or service lives forever,” said Gee. “You have to switch some things off to keep innovating.”

HP’s acquisitions, which include last year’s purchase of Peregine Systems, were all part of a plan initiated three years ago to accelerate the company’s software growth, provide a more complete set of offerings to enterprise customers help those companies align business and IT objectives.

“Our customer, the CIOs, are demanding they deal with fewer vendors. That’s driving a natural consolidation,” said Gee.

At the same time, Gee insists companies don’t have to buy into HP software and services whole hog, rather OpenView is designed to start small and pick and choose the applications they need.

“OpenView is not a Frankenstack, you don’t have to buy into the entire stack,” said Gee. “You can start with a one engine rowboat, and add a ferry or a cruise ship later, you don’t have to start with an aircraft carrier.”

HP is looking to gain business at companies that may have dealt with smaller and more specialized suppliers. And Gee said those customers expect at least the same level of service and support (if not better) from big suppliers like HP across multiple geographies.

“Candidly, what CIOs want is a single throat to choke,” said Gee.

And he said HP’s up to challenge.

“We’re the largest technology company in the world and we’re really starting to leverage our scale.”