HP to Pocket Opsware for $1.6B

HP (NYSE: HPQ) will buy Opsware, the data center automation software firm cofounded by Netscape creator Marc Andreessen, in a deal worth around US$1.6 billion.

HP will pay $14.25 per share in cash for Opsware, which it intends to fold into its Business Technology Optimization software product line. The purchase price represents a nearly 40 percent premium over Friday's closing price of $10.28.

The Opsware deal was one of two HP announced on Monday as the tech giant borrowed a page from rival IBM's (NYSE: IBM) recent software acquisition spree. HP said separately it would acquire Linux thin-client computing concern Neoware for around $334 million.

Managing the Data Center

With Opsware, HP gains a high-profile player in the quest to maximize the efficiency of massive data centers, where large companies spend millions on technology and energy costs.

"The acquisition of Opsware is intended to enable HP Software to help our customers resolve one of their critical pain points: controlling the increasing complexity and cost of managing the data center," said Thomas E. Hogan, HP's senior vice president of software.

Opsware has more than 350 customers, including Goldman Sachs, Home Depot (NYSE: HD), General Electric (NYSE: GE), Comcast (Nasdaq: CMCSK), TiVo (Nasdaq: TIVO) and the U.S. Department of Defense, the company said. The company has about 550 employees and expects to have $100 million in revenue this year.

Growth Expected

The acquisition suggests HP believes demand for automated data centers will continue to grow, driven by the rise of Web-based applications for businesses and consumers alike, including bandwidth-intensive uses such as video and hosted applications.

"We are about to see one of the biggest application and infrastructure build-outs in history," said Opsware CEO Ben Horowitz, who will join HP after the acquisition is completed, which HP said it expects to happen before the end of the fourth quarter. "The addition of Opsware to the HP Software portfolio will make HP the obvious choice for powering the next generation of data centers to come."

HP gains not only the core Opsware solutions, but also the benefit of Opsware's previous acquisition and rollup effort, said Gartner (NYSE: IT) analyst David Williams.

"Opsware has been focused on building a product portfolio that addresses data center automation needs," Williams told the E-Commerce Times. The various buys of smaller firms helped give Opsware a "broadened focus and a mechanism to simplify and facilitate better integration," he added.

HP shares were up about half a percent in morning trading Monday to $48.77.

A $138M Payday?

Originally known as "LoudCloud," Opsware was founded in 1999 with Netscape cofounder Andreessen among the principals. The firm was based on the idea that the rise of the Internet would create a massive surge in demand for highly efficient data centers that would require automation.

LoudCloud went public in 2001, and later sold off its application and data hosting business to EDS for around $64 million. That left Opsware to focus on creating applications to assist in data center management.

Andreessen still owns some 9.7 million shares of Opsware, according to a recent regulatory filing, putting him line for a $138 million payday.

"This means that HP instantly becomes the clear and overwhelming market leader in automation software for modern data centers and computer systems," Andreessen said in a blog posting about the deal. "HP's software product family will now cover the vast majority of needs of any modern technology organization. HP has a first-class opportunity to define the architecture and be the major vendor of infrastructure -- hardware and software -- for the huge Internet build-out of the next 10 years."

Polishing Its Wares

The Neoware buy, meanwhile, will help HP serve enterprise customers who want computing solutions that don't have large desktop hard drives. The thin-client solution stores applications and data on a main server rather than on individual machines, an approach favored by many businesses because it simplifies compliance and security oversight.

With Neoware, which HP intends to fold into the Business Desktop unit of its Personal Systems Group, HP will be able to offer thin-client solutions based on the Linux operating system alongside its own which mainly run on Windows.

"Our objective is to become the preferred brand of thin clients and software for virtualized client computing," said Kevin Frost, a vice president in HP's desktop unit.

HP appears poised to join IBM in aggressively acquiring smaller software firms that add to their portfolio of services. Like Big Blue, HP derives a significant source of its revenue from services and those outsourcing engagements represent opportunities to sell a range of hardware and software solutions.

Like IBM, HP is gaining an increasing share of its revenue from software with sales up 58 percent in the second quarter, HP reported in May, making it the company's fastest-growing business line.

Continued Confidence

HP can make acquisitions with confidence after successfully absorbing one of the largest in tech history in the form of Compaq, a bitterly controversial move that has helped HP once again become the worldwide PC leader and has the company on pace to surpass $100 billion in revenue for the first time in the current fiscal year, noted Enderle Group Principal Analyst Rob Enderle.

With CEO Mark Hurd's turnaround plan in place, HP has enough confidence to take on major buys such as last year's $4.5 billion Mercury Interactive buy.

"There's little doubt HP has decided to compete with IBM on all fronts," Enderle told the E-Commerce Times. "HP had been weaker on software and services, but they've moved aggressively to change that."