HP Puts Spark Under Web Services Strategy with Bluestone Buy

Hewlett-Packard Co yesterday expanded its application server business with the acquisition of Java and XML specialist Bluestone Software Inc. It also promised further acquisitions that it hopes will light a spark under its e-Services strategy.

HP will buy the internet infrastructure specialist to bring in- house Java and XML-based technologies, which include application servers, development tools and business integration software. Bluestone technologies will be integrated with HP's existing portfolio.

Bill Russell, HP vice president and general manager for software and solutions organization, said the move fills gaps in the company's nascent e-Speak portfolio and e-services experience. The industry is expecting a major web and application server shakeout, with larger vendors adding more features to products through acquisitions.

"Customers have come to us and expected we have the technologies and expertise in HP and [and that these are] integrated much more with our software," Russell said. Customers clearly thought HP's existing partner alliance with BEA Systems Inc was insufficient, a partnership Russell said would continue.

HP effectively gets its hands on a portfolio of feature rich products developed by Philadelphia, Pennsylvania-based Bluestone. These include the Java 2 Enterprise Edition (J2EE)-based Total-E- Server, which offers reduced deployment with load balancing, data caching, state management and reliable transaction processing.

Total-e-Server receives and processes XML messages, which can be dispatched in SMTP, FTP, Java Messaging Service (JMS), and MQ Series and Messaging (for broadcasting and multicasting). The server also includes pre-build connectors to SAP and PeopleSoft, with support for EJB, Corba and COM.

Russell said that HP also plans further announcements in the internet and application server space. "This is not the only thing we will be announcing. We have quite a change in plan regarding investments," he said. HP has been struggling to communicate its e-Speak strategy, according to analysts at Gartner Group's Symposium and ITexpo last week.

It has been forced to expand its e-services strategy in the wake of Microsoft Corp's .NET strategy, launched this summer. Part of .NET involves the automation of business processes between computing systems, offered partly through BizTalk Server 2000. Despite the fact that .NET is just four months old, Microsoft has already assembled a line-up of partners around .NET and promises to eclipse e-Speak.

In a drive to further add coherence to e-Speak, HP also hinted at a reorganization of its middleware product portfolio. Russell said other elements of the company would be folded into the middleware space. He refused to say what products these would be or when this will happen, but both companies indicated the acquisition would not affect the company's embedded Java initiative, Chai.

Under the deal HP will swap 0.2433 pre-split shares for each share of Bluestone. Based on HP's closing price Tuesday of $92.50, the company will exchange stock valued at $22.50 for each share of Bluestone, which would value the acquisition at about $468m. Separately, Bluestone reported a third-quarter loss before non- cash charges of $7m, or $0.33 a share, compared with a loss of $3.6m, or $0.26, a year before. Analysts had expected a loss of $0.42 in the recently concluded quarter. Revenue was $11.6m, compared to $4m a year ago.