HP's software group feels heat

For HP's OpenView software division, it's time to put up or shut up.

The company has spent millions of dollars on acquisitions in the past year and continues to lose money - $40 million in the first quarter to be exact.

But that's about to change, according to HP OpenView executives, who say the management software division will build on its core strengths in network and systems management, exploit its first-place market share ranking, and start selling bundled wares to deliver on IT service management rather than doling out single management products.

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For HP's OpenView software division, it's time to put up or shut up.

The company has spent millions of dollars on acquisitions in the past year and continues to lose money - $40 million in the first quarter to be exact.

But that's about to change, according to HP OpenView executives, who say the management software division will build on its core strengths in network and systems management, exploit its first-place market share ranking, and start selling bundled wares to deliver on IT service management rather than doling out single management products.

"HP has endorsed OpenView management as a key strategic area for the entire company and has allowed us to invest in six different software companies," says Todd DeLaughter, vice president and general manager of the Management Software Organization at HP. "We have spent the last year integrating those technologies, and this year HP is calling on the OpenView portion for growth in the software division."

With executive management changes (CEO Carly Fiorina was removed in February and has since been replaced with former NCR chief Mark Hurd) and talk of business units potentially being spun out at HP, the software group needs to establish itself as a key division within the company.

HP also sells the server, storage, network switch and consumer products. OpenView could help HP achieve its lofty goal of delivering intelligent data center hardware and software to enterprise IT customers.

Industry watchers say that to beat IBM, HP must more deeply entrench and integrate its OpenView software across other products. For example, IBM delivers product bundles that incorporate bits and pieces across its brands, including its management software group, Tivoli.

"Tivoli has clearly become Big Blue in every essence of the word. And that is not a bad thing if you think of the resources it can now leverage across the entire company," says Stephen Elliot, a senior analyst with IDC. "I see OpenView as a business unit on the cusp of being able to do that, to become entrenched across multiple products and really essential to HP customers."

OpenView management software, which IDC says in 2003 led the distributed performance and availability market with about one-quarter market share, is the cornerstone of HP's Adaptive Enterprise strategy. Adaptive Enterprise is HP's overarching plan to incorporate hardware, software and services, and integrate them to help customers quickly respond to changing resource needs and thus help their organizations run more efficiently. Announced in May 2003, HP's Adaptive Enterprise competes with similar programs and products from IBM, Microsoft and Sun. And to prove it, HP made six OpenView-related acquisitions over the course of 2003 and 2004 to pump up the product line with the capabilities the vendor says it needed to deliver on its Adaptive Enterprise strategy.

Executive decision

OpenView executives last year worked to integrate the acquired technologies and delivered product, but this year has to focus on making money, industry watchers say. The software division brought in just less than $1 billion in 2004 (the company as a whole hit about $80 billion in revenue). While the software business continues to operate at a loss, it grew 18% in the first quarter over last year. HP says 16% of the growth is attributed to OpenView enterprise network and systems management software. The software group, which includes OpenView as well as OpenCall carrier network software, says it will bring the business back to profitability by the fourth quarter.