I frequently am called to present the HP Today overview to HP customers and prospects.  In a recent meeting, while discussing HP’s financial strength with a major customer’s IT executives, I got a question/comment from the CIO.  He stopped me, pointed to the thin slice of the earnings pie that is HP Software and asked “How serious is HP about software? That seems like an awfully small piece of your business.” Yep, the slice that is HP Software (capital S) in our Q3 earnings is relatively tiny, 2%, but it only reflects the tip of the HP software (lowercase s) efforts.

First off, let’s start with a high level definition of what HP Software is… In the Q3 “Hewlett-Packard Company and Subsidiaries Segment Information,” in our financial statements, HP Software consists of OpenView and OpenCall revenues. That’s it. Nothing more. As a consequence of this narrow definition, only a small slice of our software revenues are reported to Wall Street. Because the definition of line items in the financial reports can be changed with appropriate notifications, HP Software’s revenues could potentially go up or down if the definition is changed to add or deduct various software products to that line item.

The label “HP Software” also applies to the HP Software Global Business Unit (GBU), led by SVP Tom Hogan, in the Technology Solutions Group (TSG). This HP Software is structured around three businesses: Business Information Optimization (BIO), Business Technology Optimization (BTO) and OpenCall.

However, it is important to understand that both of those definitions of HP Software are only a subset of HP’s overall software strategy. BTW, that strategy starts at the top. During my initial meeting with Mark Hurd on his first day at HP, along with the rest of the Corp Comms team, he pointed out that software is strategic to HP’s future success. Since then, actions are backing up his words. Some examples:

·         Technology leaders – The CTO community reporting to Shane has recently gotten a greater emphasis on software. Russ Daniels moved from CTO of HP Software to a new position as CTO of Web Computing Services, a group which will have significant focus on software. Tim Howes took over as CTO HP Software so this position did not disappear. Another new CTO position is the IPG Software Business CTO spot, filled by Sam Greenblatt. In addition, there are business unit CTOs focused on software.

·         R&D spend – A few years ago, HP spent more than two-thirds of its now $3.6bn R&D budget on hardware. Now it is over 50% of that budget is spent specifically on software. Something to note is that software R&D is less expensive to carry out than hardware R&D, which means we are getting a proportionally greater bang for the buck by the move to more software R&D.

·         M&A – HP has a very active mergers and acquisitions strategy that complements R&D. In the last few years, at least 18 acquisitions costing billions of dollars were for software, with every business group participating.

·         All hands on deck – Every business group, ProCurve and HP Labs are working on software. Some of the business group efforts are on software that will sold as a standalone products with a price tags, while some software is meant to be embedded within services or hardware to enrich functionality and add differentiation. For instance, the Enterprise Servers and Storage GBU announced in January of this year a new unit, ESS Software, with its own CTO.

Whew!

Bottom Line: To answer that CIO’s question, I think it is safe to say that HP is very, very serious about software. Every part of HP is working on software, often as a means to enhance or differentiate our hardware or services. Analysts, especially hardware-centric and services-centric ones, that ignored looking at HP Software (capital S) might want to reconsider that position and discover how HP’s investments in software (lowercase s) make this a relevant subject for research.  (Posted by Carter Lusher)