1 CEO to HP: "Good Call!"

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Hewlett-Packard (NYSE: HPQ  ) is getting a thumbs-up from (NYSE: CRM  ) CEO Marc Benioff.

Having only been at the helm for less than a year, HP CEO Leo Apotheker must welcome validation for his major shift in the company's strategy. At the Dreamforce 2011 conference in San Francisco, Benioff recently applauded HP's decision to exit the PC business and focus on enterprise software, even as HP's transformation may put it in direct competition with Salesforce's own software offerings at some point.

Although HP has renounced smartphone and tablet hardware with a clearance sale -- and oddly continuing to build them -- it must still come up with a plan for webOS. I think HP is willing to take the loss on hardware in a risky effort to widen the installed base of webOS in order to maximize what it can sell the platform for, but that's just my Foolish opinion.

HP's IBM-esque (NYSE: IBM  ) move is much more dramatic than Big Blue's own software company additions. The bill for HP's acquisition of Autonomy topped $10 billion. In contrast, IBM spent approximately $6 billion last year to acquire 17 companies. That's less than two-thirds the cost and 17 times as many companies! Just recently, IBM announced the acquisition of crime and fraud data software specialist i2 for an undisclosed amount and risk management analytics company Algorithmics for $387 million.

Both of these acquisitions tie into cross-selling additional services to financial institutions. IBM should be able to incrementally realize more value from them than HP will from Autonomy. After all, the first step to getting good value is not paying a huge premium.

What do you think? Will HP be able to transform itself into a software powerhouse while rejecting its hardware roots? Share your thoughts in the comments box below.

Fool contributor Evan Niu holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of IBM. Motley Fool newsletter services have recommended buying shares of and also shorting Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (1)

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  • Report this Comment On September 02, 2011, at 7:12 PM, rewford wrote:

    HP is only getting out of the PC hardware business. They will continue to make all kinds of hardware, including servers, storage, blade systems, cloud systems, printers, etc. Please don't think that the PC business was the only hardware that HP made.

  • Report this Comment On September 03, 2011, at 4:01 PM, AdamS8123 wrote:

    HP paid an unjustifiable multiplier for Autonomy (12x forward revenues, 28.4x forward net profits). There is virtually no chance that their investors will see an ROI on that transaction. It would be the equivalent of a company paying $1.5 trillion for HP on forward revenues or $253 billion on a forward net profits valuation. Apparently someone mentioned the word "cloud" in reference to Autonomy and all common sense went out the door.

    I do not like their chances of taking on IBM and Oracle at their own game when their competitors' software businesses have a 20 year and $20 billion head start.

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