PALO ALTO, Calif. (TheStreet) -- Hewlett-Packard's (HPQ) decision to throw down $1.5 billion for ArcSight (ARST) may seem like a lot of money for a little-known firm, but the security software maker could play a key role in the tech giant's future.
One of TheStreet.com's top security stocks for 2010, ArcSight makes security management and compliance software and is widely acknowledged as one of the hottest companies in this space.
"The acquisition is a natural step for HP," explained Forrester analyst Jonathan Penn, in an email to TheStreet. "It's a significant expansion of HP's security portfolio tangential to, and also expanding beyond, network security."
Other analysts echoed Penn's sentiments. "We believe this acquisition makes sense given HP's current networking product portfolio lacks a strong overarching security management solution," wrote Jayson Noland, an analyst at R.W. Baird, in a note released on Wednesday. "We think HP is pursuing ArcSight to deliver a comprehensive network security management console."HP has stated its desire to challenge networking giant (and one-time partner) Cisco (CSCO) with its ProCurve products, so ArcSight looks set to be another weapon in the firm's arsenal of enterprise products. "We view HP to be a logical suitor for ArcSight and believe ArcSight will be complementary to HP's TippingPoint network security and its systems/network management business," added Stifel Nicolaus Analyst Todd Weller in a note. "While [the deal] valuation is rich, we believe the likely drivers were ArcSight's high growth rate, scarcity [of alternatives], and likely a competitive bidding process." Security expertise is a chink in HP's armor, particularly at a time when tech firms are providing increasingly complex bundle of systems, security and services. By spending big bucks on ArcSight, HP is looking to boost its profile in a market dominated by the likes of Symantec (SYMC) and McAfee (MFE), which was recently bought by Intel (INTC) for $7.7 billion. The ArcSight deal, however, is not just about security, and comes hot on the heels of HP's controversial $2.35 billion acquisition of storage specialist 3Par (PARS). Speaking during a conference call before market open, Bill Veghte, HP's executive vice president of software and solutions, said that ArcSight fits into the company's broader enterprise strategy. "We see a market that needs a proactive, holistic, new approach to security and compliance," he said.
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