Hewlett-Packard Reorganizes PC Unit to Push WebOS Software

By Aaron Ricadela

(Bloomberg) — Hewlett-Packard Co., the world’s largest computer maker, is reorganizing its personal-computer division as part of a push to broaden use of the software it gained from the acquisition of Palm Inc.

Jon Rubinstein, Palm’s former chief executive officer, will take charge of product development and innovation for the Personal Systems Group, which encompasses PCs, tablets and smartphones. Senior Vice President Stephen DeWitt will run a new unit responsible for developing and promoting the WebOS computer operating system. Both will report to Todd Bradley, who runs PSG. DeWitt discussed the changes in an interview today.

Hewlett-Packard is counting on the integration of WebOS to differentiate its products from rival machines, including Apple Inc.’s iPad and those using Google Inc.’s Android. Hewlett-Packard CEO Leo Apotheker said in February that all of the company’s PCs will feature WebOS by the end of next year, a shift away from machines that only run Microsoft Corp.’s Windows operating system.

Rubinstein helped create the iMac and iPod at Apple before becoming Palm’s CEO. He will now be Hewlett-Packard’s senior vice president of product innovation and will work on projects that span the Palo Alto, California-based company, including the printing group, DeWitt said.

“We’re fortunate to have Jon doing that voodoo that he does,” DeWitt said. “He’s going to bring his knowledge, experience and passion for building products across the PSG portfolio.”

Apotheker is reorganizing business units to revive growth and take back market share after slicing $1 billion from the company’s annual revenue forecast in May. Corporations are “wary” of large-scale information-technology spending amid
concerns about global economic growth, Apotheker said at a July 9 technology conference in Aix-en-Provence, France.

On June 14, Hewlett-Packard said executives in charge of global sales, software and data-center equipment and services would report directly to Apotheker.

Hewlett-Packard bought Palm last year to add mobile devices and software to its product lineup.

DeWitt, who joined Hewlett-Packard in 2008 from a closely held computer maker named Azul Systems Inc., had been responsible for sales, marketing and operations of personal systems in North America. Stephen DiFranco, a former general manager at Hewlett-Packard, is now a senior vice president, taking DeWitt’s former role. The personal systems group was responsible for $40.7 billion in sales last year.

DeWitt will take charge of engineering, research and development, and sales and marketing for WebOS. Hewlett-Packard’s TouchPad tablet computer, which runs on WebOS, went on sale July 1, accompanied by an advertising campaign featuring
Jay-Z and other celebrities.

“It’s critical for us to expand our programs” and entice more developers to create applications for the platform, DeWitt said.

The WebOS operating system includes the ability to run multiple applications at once and lets developers design apps that talk to each other. For example, information from Facebook can be shared in users’ contact lists. It also lessens Hewlett-Packard’s reliance on Microsoft’s Windows software.

Bradley said in an interview that July 1 was a “soft launch” for the TouchPad and that more advertising will commence on July 17. The company also plans to issue a software update for the tablet in about 10 days, he said.

“We’ve had two weeks of kicking the tires at retail,” he said. “We’ve got a phenomenal tablet product.”

Still, the company must compete with Apple’s best-selling iPad tablet and devices running Android software. Hewlett-Packard has “a really good opportunity to become No. 2 in tablets fairly quickly,” Rubinstein said in a June interview.

Hewlett-Packard also is in talks to license the WebOS mobile software to other hardware makers, Apotheker said in an interview in Beijing last month. Samsung Electronics Co. held talks to use WebOS in its smartphones, according to three people with knowledge of the discussions.

Hewlett-Packard lost $1.14, or 3.1 percent, to $35.29 at 4 p.m. on the New York Stock Exchange. The shares have declined 16 percent this year.

With Cliff Edwards and Serena Saitto

Ricadela is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.

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Software AG Drops as Second-Quarter Sales Miss Analyst Estimates

July 14, 2011, 4:56 AM EDT By Ragnhild Kjetland

July 14 (Bloomberg) -- Software AG, Germany’s second- largest maker of business software, fell the most in two years in Frankfurt trading after reporting second-quarter sales that missed analysts’ estimates.

Revenue will be 256 million euros ($364 million) to 258 million euros, hurt by currency moves and the unexpected failure to close software-license deals, the Darmstadt-based company said late yesterday. Demand for implementation of products from SAP AG, the world’s largest maker of business-management software, fell from last year, it said. Sales had been seen at 280 million euros, the average estimate in a Bloomberg survey of eight analysts.

The stock fell as much as 6.74 euros, or 16 percent, to 35.32 euros, the biggest intraday drop since April 2009, and traded 12 percent lower at 36.84 euros as of 10:32 a.m.

On July 12, Indian software exporter Infosys Ltd. forecast sales that missed analysts’ estimates as customers held off signing new contracts because of uncertainties in the global economy.

Software AG, which makes software for business transactions and offers consulting services, said it still forecasts growth in full-year sales of as much as 7 percent at constant currencies and net income to increase as much as 15 percent based on a “strong” sales pipeline.

Software AG will report complete second quarter results on July 28 and SAP will report earnings on July 25.

--Editors: Robert Valpuesta, Jerrold Colten.

To contact the reporter on this story: Ragnhild Kjetland in Frankfurt at rkjetland@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

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Micro Focus in Buyout Talks Suggesting Software Steal: Real M&A

May 25, 2011, 11:16 AM EDT By Cornelius Rahn and Tara Lachapelle

May 25 (Bloomberg) -- Micro Focus International Plc is luring private-equity buyers with the cheapest valuation for a non-U.S. business software provider even as the 50-year-old computer code it was founded to translate becomes obsolete.

The Newbury, England-based seller of software to update systems running programming languages such as Cobol is trading at 12 times earnings, the lowest for an enterprise software company outside America with a market value of more than $1 billion, according to data compiled by Bloomberg. Potential buyers would gain a company that’s also cheaper relative to its free cash flow than 92 percent of global rivals, the data show.

While earnings and revenue growth are stalling after three chief executives left in five years, Micro Focus still makes almost twice as much profit per dollar of sales as the industry average and has only $73 million in debt. Matrix Corporate Capital LLP’s estimated price tag of $1.5 billion for Micro Focus would make it the cheapest business software takeover relative to earnings, data compiled by Bloomberg show. Bain Capital LLC and Advent International Corp. have made approaches, the company said last week.

“It’s a steal,” said George O’Connor, an analyst at Panmure Gordon & Co. in London who recommends buying the shares. “Considering a premium on the purchase price it would still look cheap. It’s a very well-established company with many customers and really nice products.”

Laura Stiff, a spokeswoman for Micro Focus, and Kelly Rapoport with Advent declined to comment. Alex Stanton, a spokesman for Bain, didn’t respond to a call and e-mail requesting comment.

Preliminary Interest

Micro Focus said on May 20 it had received and will explore “a number of preliminary, non-binding approaches,” including from Boston-based Bain and Advent. The company said there’s no certainty regarding the submission of an offer or the price.

A takeover of Micro Focus at 455 pence ($7.36) a share, as Matrix analyst Rajeev Bahl in London estimated last week, would value the company including net debt at 7.8 times earnings before interest, taxes, depreciation and amortization in the last 12 months. That would be the lowest multiple ever paid in an enterprise software deal of more than $500 million, data compiled by Bloomberg show.

Those terms would represent a 23 percent premium to the stock’s average closing price over the past 20 days, compared with the 38 percent average premium paid historically for deals in the industry, the data show.

Early Computer Code

Micro Focus, which counts Tesco Plc and HSBC Holdings Plc as customers, makes software that allows companies utilizing old programs on leased, power-hungry mainframes to use them on newer computers and devices. Software with programming languages such as Cobol -- the early computer code used to control automatic teller machines, traffic lights and mobile phones -- can then be run more cheaply.

The company, founded in 1976, acquired Austin, Texas-based Borland Software Corp. in 2009 to expand in the software testing business and reduce its reliance on legacy platforms.

“The jury is out on whether there is still growth in the core Cobol business, but in testing, the market is growing fast,” said Alex Jarvis, a technology analyst at Peel Hunt LLP in London with a “hold” recommendation on Micro Focus. By cutting costs, an acquirer could justify a bid of more than 5 pounds a share, Jarvis said.

Free Cash Flow

The software maker trades at 8.91 times free cash flow, less than every company in the industry except for Tokyo-based Nomura Research Institute Ltd. at 8.06 times and CA Inc. of Islandia, New York, at 8.85 times, data compiled by Bloomberg show. Meanwhile, Micro Focus made 23 cents per dollar of revenue in the last 12 months, almost double the industry’s average profit margin of 12.5 percent, the data show.

Vijay Anand, an analyst at Espirito Santo Investment Bank, expects a buyout firm to pay as much as 450 pence a share and boost revenue growth to as high as 10 percent annually.

“The key attractions are the recurring revenue stream, the solid customer base and strong cash flows due to high Ebitda margins,” said London-based Anand. “The issues the company has are fairly fixable. It mostly requires consistency of leadership and better focus on sales execution.”

The Cobol business may lure strategic buyers such as International Business Machines Corp., Hewlett-Packard Co. or Oracle Corp., while professional services and testing may be attractive to IBM or Mumbai-based Tata Consultancy Services Ltd., said Panmure’s O’Connor.

Management Turnover

Ed Barbini, a spokesman for Armonk, New York-based IBM, said the company has a policy of not commenting on rumors or speculation. Deborah Hellinger, a spokeswoman for Oracle of Redwood City, California, declined to comment. HP doesn’t comment on rumor or speculation, the Palo Alto, California-based company said in an e-mail. Mike McCabe, a spokesman for Tata in North America, also declined to comment.

Micro Focus has been plagued by management turnover. Nigel Clifford left the post of CEO on April 15 after less than a year, and just two months after the company said sales and earnings were unlikely to recover by the end of the fiscal year in April.

The shares fell 0.2 percent to 371 pence at 3:51 p.m. in London. Before today, they had slumped 21 percent over 12 months as the FTSE All-Share Software & Computer Service Index climbed 21 percent. The company’s market value had dropped to about 734.8 million pounds ($1.2 billion) as of yesterday.

‘Pedestrian’ Revenue Growth

A bid is not likely to emerge because of the company’s “pedestrian” revenue growth, limited ability to boost margins and the improbability of another public offering as Cobol continues to age, Jonathan Imlah, an analyst with Collins Stewart Plc in London, said in a May 23 report. The shares may fall to 325 pence if a bid doesn’t emerge, a 13 percent drop from yesterday’s closing price.

About 51 percent of $432.6 million in revenue in the year ended April 2010 came from maintenance with 42 percent generated by license fees, data compiled by Bloomberg show. Revenue is projected to remain flat through 2012, according to the average of analysts’ estimates compiled by Bloomberg.

“Half of the revenues are maintenance and that makes them quite cash rich, which is why private-equity firms would be looking at it,” Peel Hunt’s Jarvis said. “The core business has had quite sparse growth.”

Micro Focus, which traded at as much as 21 times its earnings in the past year, is now valued at 12 times, the lowest for an enterprise software company greater than $1 billion outside the U.S., data compiled by Bloomberg show.

“It’s a very cheap share, hence the opportunity,” said Panmure’s O’Connor.

Overall, there have been 9,870 deals announced globally this year, totaling $964.3 billion, a 22 percent increase from the $792.8 billion in the same period in 2010, according to data compiled by Bloomberg.

--With assistance from Michael Tsang in New York. Editors: Sarah Rabil, Daniel Hauck.

To contact the reporters on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net; Tara Lachapelle in New York at tlachapelle@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Kenneth Wong at kwong11@bloomberg.net.

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SAP Cornering $11 Billion ‘Green’ Software to Take On IBM

May 17, 2011, 12:07 PM EDT By Ragnhild Kjetland

(Updates with software unveiled today in 13th paragraph.)

May 17 (Bloomberg) -- SAP AG, the world’s largest maker of business management software, is cornering a 7.5 billion-euro ($11 billion) market for products that help companies increase productivity while limiting the effect on the environment.

At its annual Sapphire conference this week in Orlando, Florida, SAP is showing how software that lets businesses monitor and manage such things as their carbon footprints and the number of employee sick-days can couple with new mobile and data-analysis products to boost efficiency.

SAP’s sustainability software, used by about 1,700 customers, was one of the company’s fastest growing segments last year, said Daniel Schmid, vice president of sustainability operations. Large enterprises worldwide will spend as much as $12 billion on software and hardware related to sustainability this year alone, according to researcher Gartner Inc.

“SAP is a good distance ahead of the field,” said Stephen Stokes, managing vice president at Gartner. To compete with International Business Machines Corp., which incorporates both software and hardware solutions in its Smarter Planet offer, SAP will need to find business partners, he said.

Among customers that purchased SAP’s sustainability software are Baker Hughes Inc., the oilfield services provider, Deere & Co., the largest maker of farm equipment, and De Beers, the world’s biggest diamond-producer, according to the Walldorf, Germany-based software company.

McKinsey Study

“It’s a sizeable business for us,” Peter Graf, SAP’s chief sustainability officer, said in an interview in Orlando. “We’ve just started, this is a young discipline.”

Sustainability software generated a three-digit million euros amount in revenue for SAP last year, Schmid said. In a joint study with McKinsey & Co. on the market, SAP predicted that the addressable market for SAP’s solutions would be worth as much as a total of 7.5 billion euros between 2009 and 2014.

Adrian Bowles, vice president and principal analyst at Constellation Research Inc., recently analyzed software offerings for energy and carbon management and named companies like Hara Software Inc. and C3, founded by Thomas Siebel. Hewlett-Packard Co. has struck partnership deals with both.

“We have deep pockets to invest,” Graf said, citing SAP’s acquisitions of Clear Standards, a carbon-management software company and Technidata, which makes software helping companies comply with environmental, health and safety regulations. “We might acquire more companies in the future if we feel like speed to market is essential.”

Dell, China Telecom

Since co-chief executive officers Bill McDermott and Jim Hagemann Snabe took the helm from the now Hewlett-Packard CEO Leo Apotheker in February last year, they have pursued a three- pronged strategy of making SAP software available on-premise, on-demand and on-device, the latter with the $5.8 billion acquisition of Sybase Inc., a maker of mobile-device applications.

Among deals struck at the Sapphire conference is an agreement to make SAP applications and the real-time analytics technology Hana available to Dell Inc. customers. SAP also signed a pact with China Telecom Corp., under which the Chinese phone company will sell SAP’s on-demand software Business ByDesign to small and medium-sized companies.

China Telecom estimates the addressable market to be more than 1 million businesses, SAP said. The German company released its ByDesign software in July last year after more than two years of delay. SAP said last month it is on track to win 1,000 customers by the end of this year.

Share Gain

SAP today introduced the latest version of the so-called Sybase unwired platform and Internet-based mobile applications for businesses, as well as an agreement with Accenture Plc to develop Sybase-based software for companies in the oil and gas, utilities and consumer industries.

SAP is targeting annual sales of 20 billion euros by the middle of the decade. In 2010, its revenue amounted to 12.5 billion euros.

SAP lost 64 cents, or 1.4 percent, to 43.76 euros at 2:18 p.m. in Frankfurt, giving the company a market value of 53.7 billion euros. Before today, the stock had gained 17 percent this year, compared with a 2.3 percent increase by the 65- company Bloomberg World Software Index. IBM gained 15 percent, while Oracle Corp., SAP’s archrival, was up 9.2 percent.

Other functions SAP’s sustainability software offers include helping businesses track how much of their energy consumption comes from wind and solar power and measure the level of customer satisfaction.

“In the past, companies thought that either you are profitable or you are sustainable,” said SAP’s Schmid. “During the crisis, companies realized if you are more sustainable that leads to increased profitability. Sustainability is really a driver for innovation.”

--Editors: Kenneth Wong, Heather Harris

To contact the reporter on this story: Ragnhild Kjetland in Orlando, Florida via rkjetland@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong in Berlin at kwong11@bloomberg.net

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