HP Software is the company’s bright spot, as evidenced by continued growth and operating margin metrics well above that of HP (NYSE: HPQ) corporate.

Although HP Software is small relative to HP’s corporate total (making up just 4 percent of total revenue), the business unit maintains HP’s highest operating margin and growth, making it a key asset to HP.

HP’s software business addresses four major and disruptive market segments – IT and cloud management, enterprise security, Big Data analytics, and meaning-based computing (Autonomy) – and plans to continue layering these segments across HP’s broader portfolio to increase integration, revenue growth and most importantly profitability.

HP Software continues to be the promising component of HP’s financial performance and future outlook, growing 15% year-to-year to $1.2 billion in the quarter. HP Corporate experienced its fifth consecutive quarter of year-to-year decline in 3Q12, with revenue decreasing 7% to $30 billion. HP’s overall revenue and operating margin metrics show the length of journey remaining for HP as the company continues its restructuring. We believe 2013 will mark another rebuilding year for HP. Corporate operating margin declined to negative 21.7% from positive 2.5% in the year-ago quarter – HP Software’s operating margin was 27.2% in the quarter.

TBR believes HP will continue to invest in HP Software’s portfolio, R&D, and S&M as the business unit both boosts profitability and moves HP into position to capitalize on disruptive markets.

Nearly two-thirds of HP Software is made up of IT and cloud management solutions with assets from OpenView, Mercury, Opsware and Peregrine at its core. IT service management (ITSM) is a core competency of HP Software, and will continue to generate revenue growth for the business in 2013. HP Software elevated its competitiveness with SaaS-based ITSM solutions from ServiceNow and BMC with the October launch of HP Service Anywhere. Adding the SaaS-based tool will be key to HP Software’s continued success in the ITSM market as disruptors such as ServiceNow have been stealing customers over the past few years.

HP Software bolsters its commitment to troubled acquisition Autonomy through skilled executive appointment and solution deployment.

In light of the apparent lack of financial due diligence around Autonomy acquisition, TBR sees the $10 billion price that HP paid for Autonomy as a new and unwelcome challenge to the restructuring of HP. However, TBR maintains that Autonomy’s portfolio is a strategic asset for HP Software that will deliver positive results once the division is operationally sound.

With the appointment of Robert Youngjohns to run Autonomy, HP will focus on improving the business’ operations while layering Autonomy’s portfolio across other HP business units. Youngjohns brings thirty years of experience in the industry having had worked for companies such as IBM and Microsoft in executive roles. The appointment evidences HP’s commitment to Autonomy’s portfolio and its plans to drive growth out of the company.

TBR maintains that Autonomy’s technology will deliver positive growth results for HP in 2H13.

Although HP took an $8.8 billion write-off for the poorly performing Autonomy based on accusations of fraudulent accounting activity prior to acquisition, HP Software’s Autonomy-driven meaning-based computing segment is HP’s second largest segment, generating $269 million in revenue for the quarter. TBR believes that Autonomy is a leading vendor in the meaning-based computing (or e-Discovery) segment, but will face increasing competition from vendors including IBM and EMC as both HP’s and Autonomy’s financial positions come into question. HP is asking for criminal and civil investigations by the U.S. Securities and Exchange Commission to look into Autonomy’s accounting.

As HP looks ahead to cloud growth aspirations, the firm is well positioned with security in its portfolio to assuage customer adoption fears
TBR research shows security remains a major barrier to cloud adoption, across customer segments and cloud delivery methods (public, private, and hybrid). The shift from dedicated servers and traditional solutions to cloud solutions will continue because it reduces the cost of IT delivery and management, but customers will have to overcome the barrier of security.

HP is addressing this barrier with a slew of security products from R&D and acquisitions including Fortify, ArcSight and TippingPoint. HP CSA, ArcSight, Fortify and Operations Orchestration are solutions enabling flexible, secure deployment of third-party products in heterogeneous IT environments.

In 3Q12, the security unit generated 13%, or $152 million of HP Software’s portfolio And TBR expects security to be a growth leader for HP Software in 2013 as a key customer buying criteria and touches every part of the HP Software portfolio. Security can also be leveraged across other HP business units. However, based on continued poor corporate performance, customers may be weary to purchase from HP and may go to competing vendors including IBM, CA Technologies or Symantec.

Note: Jillian E. Mirandi is an analyst with Technology Business Research, Inc. in Hampton, N.H.