HP in US$4.5 billion Mercury Interactive acquisition

Stan Beer
Wednesday, 26 July 2006 17:54

IT Industry - Strategy

In what is being described as one of its biggest and most strategic acquisitions ever, HP has agreed to pay US$4.5 billion for applications management software vendor Mercury Interactive. HP had previously been in a hotly contested bidding war for the company with storage vendor EMC.
The move comes with a few major risks. It is HP's biggest ever move into the software space, where well-established software players, such as IBM, Oracle and Microsoft are already competing. The integration of Mercury into HP's business will be another mammoth project, like Compaq four years earlier. Finally, Mercury is involved in a stock options manipulation scandal. Despite the risks, however, analysts are generally viewing the deal favorably, believeing that HP is making a move in the right direction.

According to Mary Johnston Turner of Ovum, "Mercury brings application lifecycle management and IT and SOA governance tools that nicely complement HP's core OpenView network and systems monitoring and management products and the recently-acquired Peregrine service centre and asset-management products.

"HP's willingness to spend serious money and take on a daunting integration program indicates the firm is serious when it says it intends to become a major SOA management software and governance player in addition to defending its strong systems and network management position. With this acquisition it will have a full toolkit to work with, but it remains to be seen if it can really get all the pieces to play together."

Johnston Turner acknowledges that there are some unknowns as to how the market will view HP in the software space

"We believe HP is spot on in recognising that CIOs need more unified toolkits to help them provision, operate and optimise end-to-end IT and business services. But, we believe the jury is still out on whether CIOs will turn to HP - a traditional systems management company - rather than a recognised software player such as IBM, Microsoft or Oracle, which are all also investing to build out similarly-integrated application and infrastructure management portfolios," Johnston Turner says.

"To be taken seriously as a combined network, systems and application lifecycle management player, HP will have to do more than just change the Mercury logo and website. Rather, HP must orchestrate an effective integration of sales teams, channels, development teams and management staff while demonstrating to its CIO customers that the benefits of integrating management across development and operations on a shared set of tools and platforms is worth the effort.

"Software at HP is no longer business as usual, and the changes are more than just window dressing. We expect this is going to take some time to sort out but don't be in doubt, HP is serious about taking on the SOA market and giving the established players a run for their money. It's going to be an exciting ride."