Hewlett-Packard Takes Software Hard Line

Company CTO Shane Robison says the focus will be on software and services.
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Updated from 5:37 p.m. EST

Printers and PCs have made

Hewlett-Packard

(HPQ) - Get Report

a household name.

But as the Palo Alto, Calif., company looks into the future, it may be positioning itself to take on a new crop of Internet competitors in the mold of the

Googles

(GOOG) - Get Report

and

Yahoos!

(YHOO)

of the world in addition to its traditional hardware rivals.

The tech industry is undergoing "a massive wave of innovation as people start to program the Internet," H-P Chief Technology Officer Shane Robison told reporters during a briefing Friday morning. This innovation is a natural piece of HP's overall puzzle.

Going forward, Robison said, the bulk of H-P's internal R&D investments and M&A activity will focus on software and services, rather than on hardware.

"Our strategy is to build on industry standard platforms. And the way you differentiate in an industry standard world is through software," he explained, pointing to several recent software acquisitions including

Peregrine Systems

and

AppIQ

, as well as

Snapfish

, a popular online service for sharing and printing digital photographs.

In November, H-P's software division reported its first-ever profit, earning $27 million.

The comments come as some investors and analysts have wondered how H-P, which had roughly $86 billion in 2005 revenue, will generate a consistent and significant level of growth going forward.

According to Robison, H-P sees a big opportunity in layering services and applications onto its installed base of hardware.

"When you ship 35 million PCs a year, if we can get a $5 app on each of them, that's a big deal," he said.

The strategy is particularly well-suited towards H-P's mobile efforts, Robison said. As consumers increasingly use their notebooks and handheld computers to access new online services, H-P stands to benefit by supplying the consumer-electronics devices as well as the back-end computers and software that run the services.

H-P, which reports its first-quarter financial results Feb. 15, is in the midst of a reorganization under the stewardship of Mark Hurd, who replaced Carly Fiorina as chief executive in April 2005.

The company's stock price is up 39% since Hurd began his turnaround, which to date has focused primarily on improving operational execution and cost-cutting. H-P has given pink slips to more than 15,000 workers since July, resulting in a giant $1.6 billion charge.

Robison said the company was committed to attaining the best cost structure in the industry. The goal is not simply to cut costs, he said, but to free up capital for H-P to grow through investments in internal R&D and in its sales operations.

While H-P's increasing focus on layering applicationsonto its hardware may mean it bumps up against companies like Google, Robison said that Google didnot have a monopoly on innovation.

"Not all the smart people in the world work at Google," he said.