InformationWeek

In 1999, HP reported gross revenue of $42.4 billion, which represents an increase of more than 7% from 1998's high of $39.4 billion. Net income was also up year over year, from $2.95 billion to $3.49 billion--an increase of more than 18%.

For its first quarter ended Jan. 31, HP reported revenue of $11.7 billion--up almost 14% from $10.2 billion in the same quarter last year--along with net earnings of $794 million. That was a decrease of almost 10% from $882 million in the same quarter last year. The reduction in income can be attributed to one-time charges, including those related to the spin-off of Agilent Technologies Inc., its measurements unit.

HP reports results for its second quarter 2000 in mid-May. Financial analyst Tony Sacconagi of Sanford C. Bernstein & Co. estimates that the company will post revenue of $12 billion, up 15% year-over-year from 1999, and net earnings of $860 million, up 10% from the same quarter in 1999.

Although HP's corporate financial results are public knowledge, gauging the fiscal health of the company's OpenView division is another matter entirely, says Sacconagi.

Unlike IBM and Compaq, HP doesn't break down revenue in terms of hardware, software, and services. The company reports only hardware and services revenue, Sacconagi says, tying its various software revenues into either one or the other of those categories. As a result, it's difficult to determine just how much of HP's revenue base can be attributed to the OpenView product.

"HP refers to OpenView as a $1 billion product, but we believe that when they say that, it's actually talking about the services that accompany OpenView," Sacconagi says. "In terms of license revenue, OpenView is a $200 million to $300 million product, but we believe HP's total software revenue is under $500 million."

In general, analysts praise HP's new CEO, Carly Fiorina, for keeping the company focused during the restructuring period and for not allowing competitors to eat away at its market share. Says Jay Stephens, a financial analyst with Buckingham Research Group, "I don't think the competitors got any opportunities to steal share, because what Carly Fiorina has done really quickly is to figure out how to serve both the old and the new cultures at HP."

Nevertheless, HP faces a new crop of challenges in 2000. One of the company's biggest problems, analysts say, is its continuing dependence on revenue generated from hardware-related sales, which last year accounted for $36.2 billion--just over 85%--of HP's gross revenue. HP's services arm, on the other hand, accounted for only $6.2 billion--not quite 15%--of the company's $42.4 billion in revenue. In contrast, IBM's Global Services unit accounted for almost 37%--$32.2 billion--of the company's 1999 revenue.

For 2000 and beyond, Stephens says, HP needs to leverage core products such as OpenView as part of new services bundles. Those core products will generate additional revenue in emerging markets, such as in the service provider and business-to-business integration markets.

"HP should attempt to sell OpenView to more users as part of a services strategy," Stephens says. "After all, the bigger these [service provider and business-to-business] networks get, the more you need large companies like IBM, HP, and Computer Associates to help you manage what you've got."

Internally, it's been a busy period for HP's OpenView division. According to Paula Dallabetta, director of the partner management program with HP's service provider organization, the OpenView unit last year was reorganized from top to bottom to better focus on three distinct markets: enterprise customers, service and infrastructure providers, and midmarket accounts. As to how OpenView fared in 1999, Dallabetta says that her company's flagship network-management product again sustained its annual 33% rate of growth, making strides particularly in the service provider and midmarket account spaces.

Indeed, much of HP's OpenView-related efforts in the last year have centered on rearchitecting its network-management product for use as a management framework for E-business. For the most part, HP hoped to increase OpenView's desktop and systems-management portfolio as well as bolster its overall ability to manage service levels in conjunction with a variety of applications. In May 1999, for example, HP unveiled a revamped version 6.1 of its OpenView Network Node Manager product, along with a new tool, dubbed PolicyXpert, that works with NNM 6.1 to help network managers define quality-of-service policies that can be adapted to suit different kinds of network environments.

Analysts say HP must continue to shore up OpenView's desktop and distributed systems-management capabilities. HP took some positive steps in those directions last May when it unveiled version 5.0 of its OpenView Desktop Administrator, a tool that includes enhanced OpenView client-side agent technology, software deployment technology, and new client-server management features.

In contrast to vendors such as BMC Software Inc. and CA, whose tools evolved to embrace network management from a mainframe and distributed systems-management point of view, HP went the other route, beginning with a core competency in low-level network management. HP is looking to build on that core competency to accommodate the granularity of application service-level and quality-of-service guarantees.

"HP and OpenView are really strong with understanding networks, and they've grown into distributed management out of that space, so what they traditionally target are a number of network-centric things," such as switches and routers, says Jasmine Noel, a research analyst with consultancy D.H. Brown & Associates.

HP's network-centric approach suits Randall Poole, director of data-center operations with application service provider Syntellect Inc. in Roswell, Ga. Poole says OpenView's rapid time to deployment and its ability to provide a nitty-gritty, network-level view of devices help set it apart from its competition. "As far as getting the basic product installed and into a workable solution, with OpenView you have a networkwide map that you can use for monitoring after only a couple of days," he says.

Service providers such as Syntellect represent the next big thing for network-and systems-management vendors. As far as Noel is concerned, these vendors would do well to concentrate on the service provider market, in particular, as growth in bread-and-butter enterprise accounts is likely to remain flat.

"I think the market for frameworks like OpenView has pretty much stabilized in the enterprise," she says. "The network-management folks all talk about service providers as their big new growth market--and in terms of adding value on top of, or on the side of, these tools, that's a still-untapped market."

Says HP's Dallabetta, "We find that OpenView is already a pretty good fit for service providers. But we're also going to do some unique things that we'll announce in June [at the OpenView users conference] that are going to be targeted specifically at service providers. We expect service providers will be responsible for the biggest growth and the fastest growth."

Syntellect's Poole agrees that OpenView is already a capable offering for service providers. "We use it right now to monitor and issue alerts on all of our servers and also on all of our software and application processes," he says.

Although service and infrastructure providers likely will be an important focus for some time, Dallabetta says HP has no intention of overlooking its traditional enterprise customers, many of whom want to marry back-end systems with E-commerce front ends.

"The enterprise is our core business, and we'll continue to enhance things for the enterprise," she says. But, she adds, "we think that as service providers move forward and become more accepted, then enterprises will take them on" as outsourcing partners for applications and services.

Noel of D.H. Brown says HP's strengths in low-level network management might give it a compelling story vis-ý-vis ASPs and other service providers. Enterprises are more heterogeneous than ASPs, which usually deploy their systems on either Unix or Windows NT/2000. Consequently, large enterprises will continue to seek an administrative approach that accommodates the management of applications across distributed systems--even as ASPs concern themselves with managing apps from the network level up.

"ASPs in particular are really dependent on the network and they need that kind of a view," she says, "so when you talk to them about service levels, what they really want to do is manage their networks."