HP to Buy Opsware for $1.6B

Hewlett-Packard has agreed to buy data center automation supplier Opsware for about $1.6 billion in cash and debt acquisition in a deal expected to close by October 2007. (See HP to Acquire Opsware.)

While viewed as a largely positive step by financial gurus, the acquisition opens questions about the extent of HP's commitment to storage as an element of data center automation. (More on that momentarily.)

First, the basics: HP plans to keep Opsware's 550 employees, who are conveniently based in Sunnyvale, Calif. HP is headquartered in nearby Palo Alto. Opsware CEO Benjamin Horowitz will join HP as head of HP's Business Technology Optimization (BTO) group, which incorporates "heritage Openview" products, Opsware, and software acquired by HP with past acquisitions, including those of Peregrine Systems and Mercury Interactive. (See HP Finalizes Mercury Buy.)

Horowitz will answer to Thomas E. Hogan, SVP of HP software, who in turn reports to Ann Livermore, EVP of HP's Technology Solutions Group.

The Opsware acquisition buttresses BTO solution with run book automation, a key enabler of data center automation. Other elements of the company's BTO strategy include a freshly enhanced Universal Configuration Management Database (CMDB), which HP unveiled with other BTO software upgrades in June. (See HP Hoists Software Upgrades.)So far, solutions from a range of vendors have generally given short shrift to CMDB, which is a generic term describing repositories of information set up to help manage data center assets, mostly in the network and server arenas. (See Storage Left Out of CMDB Loop.)

HP says its Universal CMDB incorporates automatic discovery of devices, systems, and applications and sets up a repository of information about them and their relationships to one another. Technologies covered by the platform include servers and networking devices, as well as storage gear from HP and EMC.

A so-called custom discovery feature allows users to add other vendors' storage to the mix, HP says.

Opsware's also made noises around automating storage-specific tasks. After purchasing SRM vendor Creekpath for about $10 million in July 2006, Opsware announced plans to issue an Application Storage Automation System (ASAS) by mid-2007. (See Opsware Gains CreekPath and Opsware Outlines Storage Plan.) When Opsware bought iConclude, a run book automation supplier, for about $30 million in March of this year, it seemed to be another key element in the overall plan. (See Opsware Opens Up on Storage.)

So far, though, Opsware hasn't released ASAS, though an Opsware spokeswoman says the company hadn't changed its plans to do so prior to the merger announcement. HP, asked about Opsware's ASAS in a separate call from Byte and Switch, said there were no plans to cancel the pending announcement.Regarding the significance of storage in HP's automation outlook, both Horowitz and Hogan waxed eloquent on a media conference call this morning. "Storage is part of the integrated problem. You can't make a change to storage without knowing what's going on the network. We remain committed to that," said Horowitz.

"The explosion in digitized content is fueling the proliferation of storage infrastructure. There's inevitable growth in the trajectory of the storage marketplace," said Hogan.

Neither would be specific, though, on plans to actually integrate Opsware and HP products, leaving open the question of whether HP will blend CMDB with storage automation anytime soon, and to what extent the whole project will automate storage-specific tasks.

Wall Street analysts seem generally positive on the move, while expressing integration concerns. "We believe Opsware meaningfully broadens HP's software portfolio and is a positive addition to HP's growing software division ($2 billion, roughly 2 percent of HP revenue)," wrote Daneil Renouard of Robert W. Baird and Co. in a note to investors this morning. "We view key challenges as product integration and go-to-market."

HP's bid for Opsware is the latest in a wave of industry activity around data center automation. Earlier this month, Opsware's chief competitor, Bladelogic, revealed plans for an $80 million IPO. (See BladeLogic Looks to $80M IPO.) And last week, BMC announced plans to buy run book automation supplier RealOps in a deal said by BMC to be non-material to BMC's earnings. (See BMC Buys RealOps.)Competition from BMC, IBM, CA, and others is anticipated in this growing and volatile segment, but at least one analyst thinks a counteroffer for Opsware isn't likely. "We believe the transaction is the culmination of an auction process, which makes the probability of an alternative bid remote," write analyst Thomas Curlin of RBC Capital Markets in a note today. But he suggests things could change in a few months. "While VMWare would not be able to do something atthis time, the company could possibly get more aggressive 6-12 months after the upcoming IPO. We expect VMWare to be acquisitive using stock given the premium valuation it will be awarded versus shares of EMC."

For now, it remains to be seen how HP will swallow and digest its chunks of automation. The company also has another twist going: In a separate transaction that execs call "a coincidence from the timing perspective," HP today announced plans to acquire thin-client software maker Neoware for about $214 million. (See HP to Acquire Neoware.)

Opsware grew out of Loudcloud, a software and managed hosting company co-founded in 1999 by cyber celeb Marc Andreessen, who also co-founded Netscape Communications. After taking the company public in 2001, Andreessen and CEO Ben Horowitz sold the hosting portion of Loudcloud to EDS for $63.5 million in June 2002 and renamed the still-public automation software firm Opsware.

Opsware claims 350 customers. It posted $101.7 million in earnings for its fiscal 2006. The company has a distribution agreement with Cisco, as well as deals with EDS and Nortel, which use Opsware internally and supply it in solutions to customers.

The Opsware acquisition will be the third largest M&A purchase by HP in its history, after Compaq and Mercury.Mary Jander, Site Editor, Byte and Switch