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HP Software is Evolving to Become its Own Strategic Unit to Support Corporate Growth

A reorganization returns HP Software to its intitial focus in systems management and creates a foundation for more aggressive change in 2011
HP Software will focus on enterprise systems management solutions after HP Corporate shuffled the Communications, Media and Entertainment unit and the Business Information Optimization unit out of the Software group. TBR believes the shift will allow HP Software to focus on growing its business in enterprise software as a value driving business unit, a move away from its previous focus on a solutions strategy that combined software plus services. These two business units were previously classified under HP Software’s “Other” segment. As HP Software’s “Other” unit was not performing well, TBR believes the shift will allow HP Software to realize actual revenue growth after quarters of pancake flat growth, as BTO was the unit keeping HP Software from year-to-year declines, in addition to inorganic revenue from acquisitions. The reclassification is retroactive and declined revenue across 2009 and 2010. HP Software posted revenue growth of 5% year-to-year, which TBR believes was aided by the shuffle and also as a result of integrated acquisitions of Fortify and ArcSight and cloud adoption driving services revenue. TBR believes HP Software is still undergoing its transformational changes and will be the center for new announcements across calendar 2011.
HP will focus on cloud as an enablement of revenue growth and will target how customers want to utilize cloud technology
Cloud computing holds major growth potential for HP, a company diversified in hardware, software, networking, and services. Following several years of offering cloud as a part of its Converged Infrastructure theme, HP’s new strategy puts cloud more front-and-center as a core offering. During 4Q10, the company announced its four-tiered cloud strategy with offerings including Cloudsystem (build), Enterprise Cloud Service (compute), Cloud Service Automation (manage and secure), and Cloud Discovery Workshop (transform). As competing systems management vendors like Oracle and Microsoft message cloud heavily, HP will need to continue developing its cloud messaging to maintain pace while defending its customers from switching to competing vendors, who also have additional capabilities in  applications. Cloud adoption is progressing rapidly in all regions: the Americas, EMEA, and APAC and will lead much of the growth HP needs to maintain revenue growth rates.  Paired with developing mobile capabilities, cloud will allow HP to expand its customer base, especially in emerging markets where mobility is exploding with growth.
HP’s cloud strategy combines business and IT by increasing communication between hardware, cloud, software and legacy solutions -
HP’s cloud strategy is based on expectations; people expect immediate gratification, instant results and complete connectivity from their technology systems anytime, from anywhere, on any device. The IT market has been rapidly evolving from vendors offering IT point solutions to offering end-to-end business solutions evidenced by Oracle’s Sun acquisition, Dell, IBM, EMC and HP’s multiple software and cloud acquisitions, and the on-going roll-up of the security vendors. In HP’s cloud services announcement earlier this February, HP will differentiate itself by providing increased connectivity through a hybrid model; a function that pure-play vendors like Google and Amazon cannot claim. For HP Software, the expansion of its cloud portfolio enables is to monetize the growing market by up-selling current customers and going after new customers looking to re-host, replace, re-architect or integrate their current infrastructure to have a more complete and connected IT system.

Content Reviewed by: Stuart Williams, Software Practice Director

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.