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HP's Mysterious Search for Software Growth

PALO ALTO, Calif. (TheStreet) -- HP (HPQ) CEO Meg Whitman outlined a bold goal for the company's software business this week, although investors are still waiting to hear exactly how this will be achieved.

Whitman, who recently replaced the ousted Leo Apotheker, told German newspaper Frankfurter Allgemeine Zeitung that she wants a significant leap in the company's software sales. "I want to double or triple our today's revenues of $5 billion in software," she said.

HP CEO Meg Whitman

HP is desperate to emulate arch-rival IBM (IBM), which successfully shifted its focus from low-margin hardware to high-margin software and services. Rome (or should it be, Armonk?), however, wasn't built in a day, and IBM's software metamorphosis began way back in the mid-nineties. Whitman and HP are playing major catch up.

"HP's 'Achilles Heel' has historically been its limited software portfolio and lack of innovation in its mid-range enterprise storage offering," explained Brian Marshall, an analyst at ISI Group, in a recent note. Software, he added, accounted for around 2% of the company's total revenue in calendar year 2010, despite HP's acquisitions of Mercury Interactive, Opsware and Peregrine.

Nonetheless, a clear strategic focus could boost this business, according to White, pointing to HP's recent $10.3 billion purchase of enterprise software specialist Autonomy and its deals for security firms ArcSight and Fortify.

"HP has bolstered its capabilities in highly strategic areas by purchasing software assets," he explained. "These help unite all of HPQ's offerings across servers, networking and storage and make HP a more strategic supplier of IT infrastructure."

In her interview with Frankfurter Allgemeine Zeitung, Whitman described Autonomy as a "good acquisition" by her predecessor, Apotheker. "Autonomy has potential, and we can accelerate the growth of Autonomy within our scale and structures," she added.

Whitman, however, did not give a timeline for ramping up software revenue, according to Reuters , and said that no decision has yet been made on the future of the company's WebOS software.

HP pulled the plug on its WebOS-based hardware during the summer, fueling intense speculation about the future of the remaining software assets.

Last month Reuters reported that HP is looking to sell WebOS, a move which could prove controversial at a time when Whitman is under pressure to crank up the Dow component's innovation engine.

Stock quotes in this article: HPQ, IBM 

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