Hewlett-Packard takes soft approach

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At $2bn a year, revenues at Hewlett-Packard’s software division in the wake of its deal to buy Mercury Interactive, the business software group, amount to little more than a blip on the radar of the $89bn computer giant.

Yet, to hear HP tell it, software is set to play an outsized role in the future of the computer maker as it sets its sights on overtaking IBM as the world’s biggest IT group by revenues.

“Software is core to the strategy of almost every one of our businesses,” says Shane Robison, HP’s chief strategy officer.

Last month’s $4.5bn deal to buy Mercury – HP’s biggest takeover since its $21bn takeover of Compaq in 2002 –- capped a recent string of acquisitions in the business software sector.

HP, which is set to report its quarterly results on Wednesday, hopes that building a suite of programmes designed to help administrators cope with complex IT environments will boost sales of hardware and services to its biggest customers. To accomplish this, the company is taking a two-pronged approach.

First, HP is trying to lighten the administrative workload of corporate IT chiefs, who currently spend about four-fifths of their time ensuring that their companies’ computer systems stay up and running. That time spent “keeping the lights on” could be better spent working on projects that contribute to the company’s bottom line.

“What CIOs need is help administering and managing that 80 per cent of their workload so they can shift more time, money and resources to innovating and bringing competitive advantage,” says Tom Hogan, head of HP’s software business.

Second, HP is trying to capitalise on a shift towards “service-oriented architectures” – a new way of creating the software applications that sit on top of corporate IT systems and perform essential business tasks.

“The premise of SOA is that you can have a process start in one company’s software programme and have it end up in another without the customer having to do any engineering work,” says Mark Barrenechea, former chief technology officer at Computer Associates, one of HP’s leading software rivals.

In this new environment, HP argues, software that helps govern the interactions between different programmes on the computer network will be essential.

HP’s decision to use software as the linchpin of its growth strategy follows several years in which the company seemed to be caught in a no-man’s land between Dell and IBM, its biggest IT rivals.

On the one hand, Dell’s efficient supply chain made it difficult for HP to keep up in the PC market in the wake of the Compaq acquisition. On the other, HP had to contend with IBM’s shift away from hardware and towards a services-oriented business model.

Four years after the Compaq acquisition, with Dell struggling against falling margins and increased competition, and with IBM wrestling with ways of generating more sales from its services business, HP’s middle-of-the-road approach appears to be gaining momentum.

Mr Barrenechea says HP is about one-third of the way towards building a software platform that can manage every aspect of the corporate IT environment.

“HP still have nothing in security and a very limited presence in storage,” he says. “If they really want to compete with companies like BA, Symantec, EMC and IBM, they need to fill out the other two pieces.”

Still, he and others agree that the push to build up HP’s software arm is a savvy move.

“[HP chief executive] Mark Hurd definitely gets the margin opportunity,” says Stephen Elliot, an analyst at IDC, a market research company. “He sees software as a platform to win deals . . . If you are Wal-Mart or FedEx, more and more it’s about how you are delivering services to customers.”

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