|HP has big plans to grow software revenue.|
PALO ALTO, Calif. ( TheStreet) - HP ( HPQ) has big plans to bolster its software business, but has no desire to mirror rival IBM ( IBM), according to Mark Potts, CTO of HP Software. "Whereas I think, before, the perception on Wall Street was that we were going to become a software-and-services-only play à la IBM's transformation, what we're going to be is a hardware company that differentiates through the combination of hardware, software and services," he explained, during an interview with TheStreet. "
This will be for specific solutions in our customer base."
With HP in the throes of a major restructuring, there has been a lot of talk that the no.1 PC maker is desperate to emulate IBM, which successfully shifted its focus from low-margin hardware to high-margin software and services. Potts, though, is keen to emphasize core differences between the two companies. "IBM has done a phenomenal job, but I think they have a strategy that's very different from HP's," he said. "We are primarily a hardware business, with software and services -- they are primarily a services company that has software, and has some hardware." The CTO said that, unlike its rival, HP will not be undertaking large-scale business process re-engineering, unless there's a lot of IT involved in the project. "You will see us very focused on what it means to deliver great IT solutions for the business, rather than transforming the business that might use IT solutions," he noted. Critics have derided HP's 'limited' software portfolio, although the no.1 PC maker has made a number of acquisitions to improve its software story, such as the surprise $10.3 billion purchase of U.K. firm Autonomy. HP CEO Meg Whitman, who took over from the ousted Leo Apotheker last year, has outlined a bold goal for the company's software business. Late last year Whitman told the German newspaper Frankfurter Allgemeine Zeitung that she wants to double or triple the company's software sales. HP, however, has not given a timeline for achieving this target. Potts explained that software growth will be fueled by trends such as big data, which is managing large volumes of unstructured data, and cloud computing. These technology areas, though, are evolving at different paces, he said.
Potts, though, notes that software has the highest margin contribution to HP's bottom line. "It's not necessarily as much about what the revenue of it is," he said. "The actual contribution
of software to the profit and EPS of the company is significant." HP's Software operating margin was 17.1% during its most recent quarter, well above other, much larger, divisions such as its Personal Systems Group (PSG), Imaging and Printing Group (IPG) and Enterprise Servers, Storage and Networking (ESSN). IBM, though, has an even larger software margin. Big Blue's software pre-tax margin, which is similar to operating margin, but includes certain expenses, was 43.7% during the quarter. IBM's Software Group enjoyed a gross profit margin of 89.8%. HP does not provide a gross profit margin for its individual business segments. HP shares have dipped 9.16% this year, while IBM's stock has gained 11.8%. -- Written by James Rogers in New York. >To follow the writer on Twitter, go to http://twitter.com/jamesjrogers. >To submit a news tip, send an email to: firstname.lastname@example.org. Check out our new tech blog, Tech Trends. Follow TheStreet Tech on your wireless devices.