HP Software earnings show promise in down economy

* HP Software benefited from the business environment in calendar 3Q08

Not so long ago, HP made public its ambitious plan to become a leading software provider. With chief Mark Hurd at the helm, the company known for making most of its money via hardware and other products declared it would speed to the top of the software market as well. And recent earnings announcements show HP's efforts could help it achieve this goal and succeed financially despite tough economic times.

HP last week announced its fourth quarter 2008 financial results and reported net revenue up 19%, or $5.3 billion, from a year earlier to $33.6 billion. Fiscal 2008 net revenue also grew by 13%, or $14.1 billion, to $118.4 billion. And HP Software increased total revenue by 13% to $855 million.

"HP Software benefited from the business environment in calendar 3Q08," reports Stuart Williams, senior analyst for Software Business Quarterly (SBQ) at Technology Business Research (TBR), in a recent press statement. "Especially in the current economy, CIOs are being tasked with deep budget cuts, and HP gives harried executives the capability to reduce headcount while sustaining IT service levels for lines of business. Information technology is deeply embedded into business operations -- enabling and connecting all segments of the value chain from sales to manufacturing -- and automating the operation of that IT can generate significant cost savings.

Aside from the efficiencies management and automation software potentially offer, HP says the revenue increase was led by 15% growth in its Business Technology Optimization unit -- comprised in part of technology acquired with Mercury Interactive and Opsware. The acquisitions are worth noting because they accelerated HP's move up the ranks from a tool provider with its OpenView network management software to a full-blown software vendor that covered a wide range of management technologies from IT components to service management to governance and business processes.

"The overall goal is to create a single HP Software business unit that includes all of the expertise for designing, implementing, operating and supporting HP software solutions," Williams says.

Another acquisition promises to do the same for HP in terms of its services business. According to the company's earnings announcement, "HP Services (HPS) revenue increased 99% to $8.6 billion, led by $3.9 billion revenue resulting from the EDS acquisition." Apart from that buy, HPS revenue grew by 10%.

"With regard to EDS, revenue was stronger than expected and management said the integration is on track," wrote FBR Research in a recent report. "EDS clearly presents a large cost-improvement opportunity."

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Copyright © 2008 IDG Communications, Inc.

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