Why Hurd landed on Mercury Interactive

At an EMEA level event for HP’s OpenView software business last year, one of its senior executives denied claims that the company didn’t see software as a major strategic area. In fact, he said, CEO Mark Hurd had reviewed the software business three times in the first two months of his tenure. “I’d love to say that it’s because Mark loves software, but it was because we were losing money,” the executive admitted.

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By  Peter Branton Published  August 6, 2006

|~||~||~|At an EMEA level event for HP’s OpenView software business last year, one of its senior executives denied claims that the company didn’t see software as a major strategic area. In fact, he said, CEO Mark Hurd had reviewed the software business three times in the first two months of his tenure. “I’d love to say that it’s because Mark loves software, but it was because we were losing money,” the executive admitted. Part of the problem for HP’s software business was that Hurd’s predecessor, Carly Fiorina, didn’t pay that same level of attention to software. This was perhaps best illustrated when HP began the process of buying Compaq in 2001. As there was little overlap between the two firms’ software lineups, software just didn’t get given the same level of attention in the “cleaning room” — the business unit that HP set up to oversee all processes of the two companies — as other parts of the company did. Last month’s purchase of Mercury Interactive should firmly end the idea that HP does not take software seriously: after all, you don’t invest US$4.5 billion in a business if you aren’t serious about that business. While there hadn’t been much on the grapevine about HP going in for Mercury prior to the acquisition’s announcement, it was not a surprise that HP made a big-ticket buy. While it has bought up a dozen or so software firms in the past couple of years, only Peregrine Systems, bought last year for US$425million, made a splash. So it could be argued that HP was about due to land a big fish. By buying Mercury, HP has also managed to double its software business, pretty much overnight. Annual revenue will now be around the US$2 billion mark and it is also hoped that the software organisation’s profitability will increase through economies of scale. That may mean some employee lay-offs, with HP executives admitting last month that staffing levels have still to be determined. Above all, buying Mercury looks to have given HP a much better software portfolio. With little product overlap, effectively HP can add Mercury’s whole portfolio, which bulks up its coverage in key areas such as test and development, IT governance, application management and service oriented architecture (SOA). As SOA is currently one of the hottest “buzzwords” in the industry right now, then that last area could prove to be absolutely crucial. HP was previously seen to not have a strong offering in SOA, which has held back its revenues in more than just its software business: IBM’s perceived strength in SOA is helping it in other markets. Fiorina’s stated aim with the Compaq merger was to build a company that could better take on IBM. It could be that the Mercury buy will be the one that achieves that. ||**||

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