Profitability elusive for HP software group

IDG News Service - Business may be picking up for Hewlett-Packard Co.'s hardware divisions, but the company's software group is still more than a year from profitability, HP executives said yesterday during a financial analyst conference in San Jose.
"The return to profitability in that business is later than I had originally said, and we had originally thought a year ago," said Carly Fiorina, HP's chairman and CEO, during a webcast of the meeting.
In the company's most recent quarter, software was one of the fastest-growing divisions within HP, with revenue rising 23% year over year, but the business unit as a whole was unprofitable. That trend is expected to continue for at least another year, according to HP.
"Our plan is to approach break-even by the end of 2005," said Ann Livermore, the executive vice president of HP's Technology Solutions Group.
One of the reasons behind the division's lack of profitability is that HP has spent $100 million in research and development over the past year, along with millions more in the acquisition of six software companies, including TruLogica Inc., Consera Software and Novadigm Inc., Fiorina said.
That trend is expected to continue over the next year as HP works to promote its vision of a flexible computing architecture called the Adaptive Enterprise, Fiorina said. "We want to bring that business back to profitability, but that will probably not happen until 2005 because we are making very targeted investments in software," she said.
With HP a year into its rollout of the Adaptive Enterprise strategy, which is similar to IBM's On Demand strategy and Sun Microsystems Inc.'s N1 Grid technology, it's clear that HP must do a better job of integrating the software it sells, said Gordon Haff, an analyst at Illuminata Inc.
"They have a lot of individual assets, but one of the places they've fallen down compared to, say, IBM's Virtualization Engine is in tying all the pieces together from a business solutions standpoint," he said. "It's a little ironic, given the [Adaptive Enterprise] vision of simplicity and integration how complicated and unintegrated some of the components are."
Though Livermore said that HP's software strategy is about management and not middleware, that kind of software will ultimately be a "critical" part of Adaptive Enterprise, said Corey Ferengul, an analyst Meta Group Inc. "I would tell them that they need to buy [BEA Systems Inc.] ... if they want to go toe-to-toe with IBM," he said.
HP hasn't had great success with middleware thus far. In 2001 it spent an estimated $470