By JESSICA BREEN, special to LTW

Editor’s note: Jessica Breen is an anlayst at

HAMPTON, N.H. – Hewlett-Packard (NYSE: HPQ) (Nasdaq: ARST), a security and network solutions company, for $1.5 billion following its most recent acquisitions of Fortify and Stratavia in August.

Consolidation of security solutions is in full swing as systems management vendors make strategic purchases to diversify the portfolio and enable better end-to-end offerings.

In May 2010, Oracle acquired Secerno to provide database security while IBM purchased Ounce Labs in 2009.

ArcSight is highly complementary to HP’s existing security portfolio as HP was formerly a reseller of ArcSight appliances that provide enhanced visibility and correlation techniques to bring customers advanced security tools.

TBR believes HP Software will integrate ArcSight along with Fortify and existing security solutions to drive stronger capabilities in security to enhance solutions, rather than build out a separate security business. TBR believes HP Software will try to bundle security to sell enterprise solutions to ArcSight’s existing customer base.

ArcSight brings with it a considerable presence in large enterprise, some of which include Verizon, Securities and Exchange Commission, Target, and Pfizer. TBR believes ArcSight will also provide enhanced capabilities to drive converged infrastructure to attract greater customer growth as security solutions address the primary customer pain point in cloud adoption.

Mounting competition in security

HP paid 8.3 times ArcSight’s revenue run rate as ArcSight’s revenue totaled $181 million in its last fiscal year. ArcSight attracted interest from many large IT companies which likely led to the high price tag for ArcSight.

TBR believes some of the companies interested in the security solutions company were systems management vendors IBM and Oracle, as well as applications vendor SAP, who were all strategic partners with ArcSight. HP made a strategic move to increase diversity in security while weakening the partner pools of competitors. TBR believes acquisitions in security will continue rapidly as HP makes aggressive moves to consolidate the domain. ArcSight is a leading cloud-based and managed Security Information and Event Management (SIEM) vendor and is a rapidly growing company.

TBR believes that between ArcSight’s large base of over 1,000 customers and the capabilities the company will provide to enhance enterprise solutions, HP Software will see a return on their investment. Bill Veghte promised to revitalize the Software and Solutions division and is doing so aggressively by targeting and acquiring key technologies for investing in future solutions.

Security is for the “Clouds”

Fortify, Stratavia, and now ArcSight reflect a broader set of trends including consolidation of the security vendor landscape, the increasing importance of security for hybrid on-premise, cloud and mobile environments, and increasing integration of security across portfolios and products.

TBR believes security solutions allow vendors to differentiate solutions while provisioning for growth in cloud and mobility. HP Software will use security technology to enhance cloud management tools as the company drives growth in cloud and virtualization portfolios.

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