No slowdown in HP's software expansion quest

BARCELONA, Spain--Hewlett-Packard has been on an extensive buying spree in the software business, but, far from being satiated, the company's appetite for further acquisitions remains, according to Tom Hogan, senior vice president.

HP has bought five companies in the past 16 months: Mercury Interactive, Opsware, SPI Dynamics, Bristol Technology, and Peregrine.

Tom Hogan

But the company says it won't stop there. "We are looking to grow more in the software business," Hogan said, adding that quick growth "can't all be organic growth." Hogan was speaking at a press conference held at HP's Software Universe conference here Monday. He would not divulge any information on which companies he might be considering buying, and he would not confirm that the company was actively looking. All he would say was, "If we are looking for purchases, it will in the billions-of-dollars class."

The company is "committed to massively elevating the strategic relevance of HP software", Hogan said. "[Software is] the fastest-growing and most profitable line of business within HP... and from a margin basis, the most profitable." Two years ago, it was break-even, according to Hogan.

HP has built itself a considerable software portfolio, mostly through its acquisitions. Easily the biggest was the purchase of Mercury Interactive in July of last year. The company paid $4.5 billion for Mercury, a figure that represented a huge premium on the company's share price at the time, estimated at 33 percent.

In July this year, HP spent another $1.6 billion on Opsware, a company that offers products and services for provisioning and configuring servers and network infrastructure.

Two years ago--prior to these purchases and under the stewardship of Nora Denzel, who left the company in December 2005--HP's total software business was worth about $1 billion but was barely profitable. In the last quarter of 2005, it made just $27 million in profit from $311 million in revenue.

According to Hogan, HP has seen revenue double from the fourth quarter of last year to the fourth quarter of this year, which has now reached $698 million. For the full year, software revenue is $2.33 billion, but the level of profit is unclear. Hogan would only say that profit "is up 306 percent, year on year."

Colin Barker of ZDNet UK reported from Barcelona.