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HP adds Opsware to its automation portfolio

With Opsware under the hood, HP can sell software that automates server, network and processes in one fell swoop.

On Monday, Hewlett-Packard Co.announced that it has agreed to purchase the data center automation software company Opsware Inc. for $1.6 billion.

Opsware fills a hole in HP's extensive portfolio of data center management software, said Thomas E. Hogan, senior vice president of HP Software.

"A lot of Opsware products are already deployed in the same market with HP, so there is integration in the field, but very little product overlap," Hogan said.

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The trifecta: server, network and process automation
Sunnyvale, Calif.-based Opsware sells automation tools for server, network and process automation, along with a product that coordinates all three functions to automate the entire data center: the Opsware System.

In announcing the acquisition, both HP and Opsware highlight that the Opsware System encompasses the entire data center, so it is likely that HP will push the product aggressively, said Ronni J. Colville, research vice president of enterprise management at Gartner Inc.

"Network people buy network tools, server people buy server tools. We like to put things under an umbrella, but people aren't doing that at this point," Collville said. "No one has been able to sell configuration and network automation tools together. [HP] is buying this to try and make it something that everyone uses."

Though all-in-one data center automation tools have yet to be develop, Opsware offerings come closer than others, said Eric Gebaide, managing director of Innovation Advisors Inc., a technology and financial analyst firm based in New York.

Most people are betting that you can't lose in this space.
Eric Gebaide,
managing director, Innovation Advirsors Inc.

"In the data center, there is a need for control over a very heterogeneous environment," Gebaide said. "The holy grail is the piece of software that allows you to view every piece throughout the entire data center. There isn't one, but the Opsware software is a better one out there to control and track products in the data center."

Colville said the Opsware product is "a platform that requires lots of customization and expertise to develop it into a honed-in and finely tuned automation tool."

Once HP officially adopts Opsware, Colville said users might see a slight drop in prices, though there is no official word on pricing changes from HP.

"When Opsware and BladeLogic were alone in the market together, they could charge high rates because they were considered boutique buys," Colville said. "HP offers more aggressive pricing. And now that Opsware is owned by HP, users may see it available at lower, commodity prices."

Following the close of the transaction, Opsware will become part of HP's Software unit. At that time, HP also expects to appoint Opsware's CEO, Ben Horowitz, to lead HP's Business Technology Optimization unit, which includes Mercury Interactive.

HP banks on management software
This acquisition follows HP's acquisitions of Mercury Interactive Corp. last year for $4.5 billion, when that software company reported $84.6 million in sales.

HP has made a number of acquisitions in the management software space on predictions of major growth in that market.

"Most people are betting that you can't lose in this space. There is more and more of a need to manage the mobile complex world we are in," Gebaide said.

In 2004, HP bought Novadigm Inc. and Consera Software; and in 2005, it purchased Peregrine Systems Inc. Overall, HP has invested more than $6 billion in this market, according to Hogan.

Gartner's Colville said the recent purchases allowed HP to expand its software portfolio more quickly than it could have by developing products on its own.

"I think [HP's] intent is to grow its software business very quickly and the way to do that is through acquisitions. Opsware was really the only option left to grow HP's bottom line in configuration management," Colville said.

The price point for Opsware is "insane," added Colville. "It seems way overpriced for a company that isn't that profitable."

Opsware's net revenue for its first quarter ended April 30, 2007, and totaled $28.3 million, up 29% from the same quarter last year.

Other observers, however, maintain that the purchase makes sense. Opsware represents the last big player in the data center automation space, and HP's decision to buy it was a wise one despite the premium it paid, Gebaide said.

"HP is filling a hole, and any overlap is positive for HP because Opsware had better offerings in the points of overlap," Gebaide said. "HP paid a lot for Opsware but their value in the public market is in line with the premium HP paid. It isn't about Opsware's profitability; it's about all the potential."

The acquisition will be conducted by means of a tender offer for all of the outstanding shares of Opsware, followed by a merger of Opsware with an HP subsidiary. The tender offer is subject to several customary closing conditions including regulatory approvals and is expected to close before the end of the fourth fiscal quarter of 2007.

Let us know what you think about the story; e-mail Bridget Botelho, News Writer.

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