Client News
H-P, Microsoft Partner Against Rivals (Azure)
Nick Wingfield and Justin Scheck, Wall Street Journal
January 13th, 2010
Hewlett-Packard Co. and Microsoft Corp. said they will invest $250 million in a partnership to more tightly couple their software and hardware products, as rivals Oracle Corp., International Business Machines Corp. and others remake themselves as one-stop shops for technology.
H-P and Microsoft said Wednesday the three-year agreement will involve an array of initiatives, all aimed at helping businesses reduce some of the headaches of setting up and operating data centers, the backrooms that house corporate software and computer equipment.
Among other things, H-P and Microsoft will join forces to sell H-P server hardware with networking equipment, as well as storage and common Microsoft business applications such as its Exchange email and SQL database software.
The deal is another sign of the deeper integration that tech companies hope to achieve with products once primarily sold as separate components by different suppliers. That placed a big burden on corporate customers to assemble and test all of the products on their own.
It could help strengthen H-P in its competition with chief rival IBM. H-P has been clashing more frequently with the tech giant since it acquired technology-services firm Electronic Data Systems in 2008. That deal bulked up H-P portfolio of corporate tech-services contracts.
But IBM has a wider array of software for corporate buyers than H-P does. By solidifying its relationship with Microsoft, H-P may be able to broaden the data-center software it now sells.
With the recession pinching growth prospects, many tech firms are pushing to become one-stop shops for corporate clients. That has triggered a wave of acquisitions throughout the tech industry.
Last year, Oracle agreed to acquire Sun Microsystems Inc. in a $7.4 billion deal to unite Oracle's enterprise software with Sun's computer equipment. H-P is invading Cisco Systems Inc.'s turf with an agreement to acquire networking gear marker 3Com Corp. for $2.7 billion, and Cisco is trying to elbow its way into H-P territory with new server products.
"Customers are going down to trusting a few trusted hands," said H-P Chief Executive Mark Hurd.
Bill Whyman, an analyst at investment firm ISI Group Inc., said the alliance is motivated by a desire to help customers cut costs. "It's an attempt to get many of the same benefits without a full-blown acquisition," he said.
It's unclear whether Microsoft and H-P can blend their offerings as effectively as a single supplier can. Both companies have cooperated closely for more than two decades. H-P is the world's largest PC maker by units and the vast majority of its machines run on Microsoft's Windows operating system, with worldwide share of 19.8% of new PC shipments during the fourth quarter, according to IDC.
[bizworld]
Mr. Hurd in an interview said the new agreement with Microsoft "is the deepest collaboration we've had yet in terms of alignment of all resources, from engineering through marketing and services."
Microsoft CEO Steve Ballmer said a "driving force" behind the deal was the interest among businesses in "cloud computing," in which companies move online business applications into public or private data centers. As part of their agreement, Microsoft and H-P said they will jointly promote Microsoft's public cloud computing service, Windows Azure, to customers.
Last November, Cisco partnered with computer-storage company EMC Corp. to jointly sell hardware, software and networking gear. Roger Kay, an analyst with Endpoint Technologies, said that partnership likely played a role in H-P deepening its ties with Microsoft.
EMC is the majority owner of VMWare Inc., which makes software used to make data centers operate more efficiently. With the new Microsoft deal, H-P says it now will use Microsoft's competing software.
Similarly, H-P will package Microsoft's database with its hardware as it once did with Oracle's software. That agreement ended after Oracle moved to acquire Sun. Under its deal with Microsoft, H-P will make a similar machine running Microsoft's database software.
"It's a win for Microsoft," Mr. Kay said.