Despite being the leader in the IT industry in terms of revenue, HP trails both Dell and IBM in terms of operating margin which in the long run will allow either Dell and/or IBM to surpass HP.
HP's investment in revamping its own IT infrastructure as a way to showcase its products and services will fail to draw new customers to HP's ESS segment.
IBM will take advantage of its high gross profit rate to make up the slight edge HP held in revenue in 2006 and retake its position as the number one provider of IT products and services.
HP Software Group is a substantial mishmash that lacks even the semblance of a strategy from other hardware manufacturers like IBM and EMC. Because HP has acquired and combined so many different pieces of software it’s not surprising that family may lack a coherence (think HP, Digital, Compaq, Tandem.) Between 30% and 50% of all existing HP software revenue has been acquired in the last 3 to 5 years. On of the latest, Mercury Interactive, was itself already the product of a few acquisitions.
At over $100B in annual revenues the $2.3B of software reported by HP is unlikely to get much attention from top management. As it stands the HP software product family is loosely concentrated around IT lifecycle management (ITLM) with products like OpenView and the Mercury offerings at the core.