HP Enterprise: What to watch

Expect HP to move deeper into software, but it's not yet clear what kind, analysts say

Hewlett-Packard's move to break up the company sets up the enterprise side of the business for a fresh attack on rivals such as Oracle and IBM.

Hewlett-Packard Enterprise will be led by Meg Whitman, while Dion Weisler heads up the company's PC and printer business, which will be called HP Inc. The enterprise business includes HP's software, services and server businesses. The separation is expected to be completed by October 2015.

While it's not clear how closely the two halves of the company had been working together anyway, here's a look at what the change means for HP, and what strategies HP Enterprise may pursue moving forward.

The need for speed

"Being nimble is the only path to winning," Whitman said during a conference call on Monday. "Separating into two companies will enable each management team to have a sharper focus."

One analyst generally agreed.

"I expect them to move much faster and aggressively on the enterprise side," said Holger Mueller, vice president and principal analyst at Constellation Research. "The market valuation of the enterprise side should be higher now that the commodity PC and printer business is separated. I'd expect the latter to do better, too, as it can become an optimized consumer brand and do all the things needed there that would have been a conflict to the overall HP brand."

Overall, the changed structure should "increase the focus and intensity - all that HP was missing before," Mueller added.

Is software the solution?

HP's split now frees up the enterprise division to make more acquisitions, as the new structure should ease the corporate approvals process, said Rob Enderle, principal analyst at the Enderle Group.

A hallmark of former HP CEO Leo Apotheker's run was the disastrous acquisition of infrastructure software vendor Autonomy. HP famously took a multibillion-dollar writedown on the deal and has been mired in an ugly public battle with the company's co-founder and former CEO, Mike Lynch.

"Software's been a mixed bag for years at HP," said Forrester Research analyst Glenn O'Donnell. "Their real problem has been execution. If they can hunker down on that software story they're going be a much different type of company."

O'Donnell sees HP getting into the enterprise applications business, "probably by acquiring."

Finding the sweet spot

"A company like HP has to move towards applications as closely as possible," said Michael Cote, head of the infrastructure software practice at 451 Research, via email. "For HP that probably doesn't mean enterprise applications, but moving above the operating system level into higher level platforms. So much of the 'lower level' platforms like traditional OSes, virtualization, and even cloud platforms are seen as needed, but not worth paying a lot for in their own: you need to bundle actual use cases on-top of all that infrastructure."

What 451 Research surveys have found is high demand for new types of infrastructure software, Cote added.

"I was just looking at our most recent cloud survey and the hottest technology category in demand and for planned use is automated server provisioning," he said. "What used to be a sleepy corner of systems management is now of intense interest to the market. I think this is because companies are looking to rejigger how they run IT, which puts [HP Enterprise] in a good position if they can position their portfolio well."

Mueller doesn't expect HP to dive into the enterprise applications market directly, either. "Partnerships with SAP and Oracle and Salesforce.com, yes, run applications on their cloud, yes," he said. Whitman needs to focus on HP's plays in IaaS (infrastructure as a service) and PaaS (platform as a service) first and foremost, Mueller added.

The wrong move?

HP has made a significant misstep, according to analyst Ray Wang, chairman and founder of Constellation Research. "The challenge is, the pendulum is shifted to software-embedded hardware and HP is breaking the company up in two just as this is happening," he said.

"They lose supply chain synergies, R&D synergies, and a lot of good intellectual property," Wang added. "The startups being funded are in embedded devices and systems. Now is not the time to break up. They can shed assets but taking the two apart is a bad idea for HP overall."

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com

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