Contact: Brenon Daly
Under Mark Hurd, Hewlett-Packard looked to bulk up all of its divisions through M&A. But software was definitely an afterthought. Hurd’s most-notable transaction, of course, was the $13.9bn purchase of services giant EDS. In his half-decade at the helm, Hurd also sprinkled in deals for companies selling gear for printing, storage and networking, among other areas.
Ever since Leo Apotheker replaced Hurd, people have been speculating that software would become a renewed focus at HP, if for no other reason than Apotheker spent some two decades at software giant SAP. Indeed, as he laid out his grand plan on Monday for HP in his first major strategy speech as CEO, Apotheker hit on software a number of times. (At least we think he did. It was hard to tell what was actually being announced in HP’s buzzword-laden release, which was heavy on ‘convergence’ but light on specifics.)
Apotheker also appeared to indicate that HP would continue shopping, with both security and information management as focus areas for M&A. Actually, that’s already showed up in deal flow since he took over. HP’s three most recent acquisitions (Vertica Systems, Stratavia and ArcSight) have all been done by the software group.
But if we’re brutally honest, we might suggest that the issue with HP’s software business isn’t so much adding to what’s there as it is just making what’s already there actually deliver. While other tech giants rely on software for outsized growth and rich cash generation, neither is particularly true for HP.
HP’s software division is growing in the mid-single digits while posting an operating margin that’s just half the level of most other rivals. To underscore the underperformance, consider this: even though HP’s old and dusty printer business is 10 times larger than its software division, they have the same growth rate. Dare we say that HP’s software unit could probably benefit from a Hurd-like focus on operations by Apotheker?