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MARCH 3, 2003

© Copyright 2003 Hewlett-Packard Development Company, L.P
All rights reserved. Do not use without written permission from HP.

Thank you and good morning everyone. It's a pleasure to be here today for BEA's 8th annual eWorld Conference.

Orlando is a wonderful place to host a conference for some of the industry's leading developers and IT managers. We are in a city that places enormous value on the role of technology in transforming people's lives and experiences.

Let me give you two examples. Just up the road a bit at Walt Disney World, HP is working with Disney on a device that will provide real-time, location-based translation services in the park. It's a headset-like device that will make it possible for guests who don't speak English to navigate the park, the rides, and the shops with a constant stream of location-based information provided in their own language.

Another example: later this year, HP and Disney will unveil a new attraction called Mission: Space. One of the important points that President Bush made in response to the devastating shuttle tragedy last month is that our nation would continue its exploration of space. This attraction is designed to bring the thrill of space flight to life for those of us who will never get that experience. HP engineers—together with Disney imagineers—worked hard to make that experience as memorable as possible.

Now, why do I mention these two examples? Because I'm proud of the work HP has done here in Orlando? Sure. But in a larger sense, I mention these two examples because even in this city, where memory and tradition intermingle to tap into some of the oldest and deepest experiences we all share from our childhoods—with a brand known the world over—lives and experiences are being transformed by technology.

Every single day, the executives at Disney ask themselves these simple questions: how do we extend the trusted brand experience that has made us great, while also imagining the future? How do we take our best ideas and our enduring assets and use technology to market them, maneuver them and marry them and introduce new levels of magic to the Disney experience?

And every single day, every developer, IT manager and CIO in this room asks a similar question: how do I link today's business ideas to the systems and data that we've invested in for years? How do I build a bridge between application development and integration? And how do I do it fast, and efficiently, and inexpensively? BEA likes to say that getting strategic information currently trapped in legacy applications into tomorrow's applications is today's business challenge. And that's really the challenge we're here to talk about.

More and more, businesses that operate in this new world can be separated into two kinds of businesses: those who see information technology as necessary overhead, and those who see information technology as a competitive asset.

At HP, we like to think of it as the fault line between winning and losing in the marketplace. Those companies who see IT as a competitive weapon generally have an empowered CIO and an empowered IT organization—a CIO who is as likely to be working as much on business strategy as on technology strategy . . . who sees technology as a business accelerator essential to business success.

I think it was Marilyn Monroe who convinced the world that diamonds are a girl's best friend. But we come to this conference today convinced that the diamond partners sponsoring this conference—HP and Intel, together with BEA—are potentially a CIO's best friend. I want to talk for a few minutes about what we are doing together to give more "power" to empowered businesses and CIO's.

I was interested in the fact that the theme of this year's conference is 'convergence,' because I represent a company that has thought a great deal about convergence these past three years. It has caused us to do some pretty bold things, including the largest merger in the history of the IT industry.

From where we sit, convergence is just another word for the fundamental reality that all CIO's face in today's IT world: namely, the realization that the value proposition for IT must change.

To us, that agenda—the customer agenda—is the only agenda that matters. At HP, we view convergence through a lens that magnifies two distinct areas: technology convergence and industry convergence.

There used to be a time in IT when stability was the name of the game. There used to be time when you never touched a running system unless it was broken.

Those days are gone. No matter what industry you are in, the name of the game today is speed and agility. Every enterprise must react quickly to change. You have to be able to adapt your infrastructure more rapidly and deploy systems in real time to meet business demands.

At HP, our CIO, Bob Napier, has a favorite phrase. He says that "every business decision triggers an IT event." Our IT team handles more than 500,000 business-driven IT events every week.

How do you deal with that much change? And I'm not talking about the kind of change that result from extraordinary business events like mergers or acquisitions. I'm talking about every day business decisions: changes in pricing, changes in the supply chain, changes in capital markets, a new employee.

These IT events don't happen in a vacuum. They don't happen in discrete silos. Each business decision triggers a series of changes across the entire IT infrastructure&—HR systems, finance systems, supply chain systems, the employee portal, as well as across the network, the servers, storage, and software running in the data center; the PCs and printers and mobile devices on people's desktop, in their briefcase, or at their home; and the data, applications and business processes this infrastructure ultimately supports.

For IT managers, it means that the IT infrastructure needs to be able to manage change. Change—as it ripples across all of these systems—must be predictable and controllable. Infrastructure must be designed to give IT departments the ability to control the impact of change. Infrastructure must be able to flex with the business, whenever the business demands it. It must become a platform for the efficient operation of the business—a platform for the efficient delivery of data and business applications and processes.

Which leads me to another favorite saying of Bob Napier: "If you get the infrastructure right, everything is possible." That's a very important idea. If you get the infrastructure right, everything is possible. He ought to know—he had to manage one of the biggest infrastructure integration projects known to man.

The problem is, many current IT environments were built up as islands of automation. Applications were built up on vertically integrated technology stacks—independent, monolithic silos. These environments were built to be stable, not to react quickly—which is why one survey found that the business environment is changing seven times as fast as the underlying IT infrastructure.

So, as IT and development managers, your department spends nearly half of its time finding stop-gap fixes to old solutions that can't keep up with yesterday's demands, let alone today's.

Or worse, you've invested hundreds of millions in a system that doesn't necessarily talk to the old system, and yet business cycles and budgets no longer support custom-built hardware and software to meet those needs. So all the while, you are being pressed to do more with less.

And on top of it all, the rapid transformation to a digital world will mean there is more data created over the next three years than in the entire history of mankind. And that's when the fun really begins.

And yet, after a long hard day at work, you come home and turn on the TV, only to see commercials in big blue color boxes aimed directly at the line of business guys around you, which say: "Your IT organization promised you the world. They promised you pixie dust and time machines and magic binoculars. And they failed. Now it's time to hire us."

Now you'll have to forgive us if we take a little bit of offense at that approach. IBM may be a company of consultants, but first and foremost, HP, BEA and Intel have always been companies of inventors and engineers. IT managers are our people. We don't think IT managers should be blamed or rejected; we think you should be empowered.

As a company, we could offer our customers magic binoculars that allow you to peer into the future and undo the IT decisions you make today. But we prefer to help our customers get it right the first time.

We know that no matter what industry you are in, you are no longer interested in buying the fastest, hottest box. You're no longer simply interested in the latest killer app.

Just as we are at HP, you're focused on fundamental questions: how do I get a better return on my IT dollars? How do I get real value? How do I lower the cost of acquiring and operating IT so that I can apply those savings toward projects that drive real competitive advantage?

There has been a great deal written in recent months that the changes we're seeing in IT spending are cyclical, driven by an economic slowdown—and that's certainly part of it. But I think we would make a big mistake if we believe that cyclical change is all that's at work here. The truth is, this change is not just cyclical; it's permanent. The value customers place on lowering IT acquisition and operating costs, on scope and scale, on adaptability and sustainability—is here to stay.

For all those who work to manage this new landscape, the business model shifts required to deal with this technology convergence is driving an equally significant industry convergence.

The reality is that in today's market, there are fewer and fewer companies with the ability to offer end-to-end solutions who also have the resources to continue to invent and invest in the technologies of the future. In September of 2001, when HP first announced our merger with Compaq, we saw these changes, and we aimed our merger at the intersection of these changing customer realities. For that reason, HP is now one of those companies.

So where are we focused today—particularly as it relates to enterprise customers?

First, we intend to be the company that provides the best return on information technology; the company that works to redefine the economics of IT infrastructure. And by that I mean lower acquisition costs, lower operating costs, better manageability, better utilization of IT assets better interoperability, reduced complexity, reliability and security.

We deliver on that commitment through our people, processes, technology products, and importantly, our partners. Like BEA, we come to the table with a portfolio that differentiates us from our competitors and uniquely positions us to meet those goals. When you think about the markets we serve, HP today is the number one consumer technology company in the world, the number one small- and medium-business technology company in the world, and the trusted alternative in the enterprise IT market.

Second, we're focused on building world-class cost structures that make us more efficient while making it easier for HP to deliver innovation and value to our customers. We believe our cost structures in every aspect of our business must absolutely be world-class so that we can offer the most competitive price to our customers. And we're making great progress in delivering on this strategy.

Third, we have a discipline that focuses our innovations, our people, our assets and our R&D on the places where we believe we can make a unique contribution and lead. In the last six months of 2002, we introduced more than one hundred new products and added 1,400 patents, bringing our worldwide total to 17,000—representing $4 billion in annual R&D investment.

Where we decide not to invest, we will partner. This enables us to deliver solutions that provide the best of HP and the best of our world-class partners, like BEA. In other words, our partnerships are central to our strategy. Our partners are essential to HP's success. We believe they make the best use of our assets, extend our global reach and that they are one of the prime differentiators between HP and IBM.

HP is a collaborator, a partner by strategy, by personality, and by choice. It's the reason we are now the number one partner for Microsoft, Brocade, Intel, Accenture, SAP, PeopleSoft, Oracle, Siebel, Deloitte, CGEY and Bearing Point.

We believe our partnership strategy gives customers the flexibility, freedom, and choice they require—which brings me to our partnership with BEA.

The relationship between HP and BEA is a natural alliance that grows stronger every year. What began as a simple partnership in 1997 has grown into what we believe is an industry-leading collaboration.

Nine months ago, changing market dynamics brought us closer together. We decided to focus HP's software investment on what we do best—management of the entire computing environment—and on expanding the capabilities of our OpenView family of products.

We believe that dynamic, automated management of all the components of infrastructure—including hardware, software, application services and eventually even end-to-end business processes—is where you achieve the real breakthroughs in driving better resource utilization and lower operating costs. It's the next big step in how you create a platform for the efficient delivery of data and business applications and processes. And it's where we have a distinct competitive advantage.

By choosing to focus our software investments on what we call "adaptive management solutions," we also made a very conscious decision to partner with industry leaders for middleware and business application software.

We understand that customers have heterogeneous environments and that you need partners who can deliver the choice and flexibility you need to get the most out of those environments. Most enterprises today have both J2EE and .NET based solutions, either by design or default—and both will remain critical to next generation web services.

We are delighted to be BEA's preferred partner in the J2EE space, just as we are Microsoft's primary partner in the .NET space. In fact, we're proud to be the only hardware vendor that can offer this choice and the knowledge and support for both J2EE and .NET, and provide ways for these two worlds to operate together.

Through the strategic partnership we announced last year, HP and BEA are expanding our efforts to jointly market, sell and deliver integrated solutions, including hardware, software and services across all HP operating systems. Our partnership with BEA is absolutely integral to how HP differentiates itself in the marketplace, how we solve our customers' problems, and how we compete and win.

We have strengthened the partnership in several ways: with global alignment across products and services; a commitment to co-sell products and services rather than re-sell them; industry-leading support for Itanium leveraging our relationship with Intel, and a deeply integrated consulting and services team.

It is a relationship that works well because we are aligned around our strengths. We go to market with a common vision on customer choice and interoperability, common business objectives and common allies. Of course, we also have common adversaries—and I'll talk more about that in a minute.

Before I do, I want to discuss a new area of collaboration—one where HP intends to play a critical role in helping our customers and BEA customers improve their return on IT. This area is web services management.

For HP, this means two things&—the management "of" web services, whether its .NET or J2EE, and management "through" web services.

Let me explain.

You've all read a lot of the current hype about web services—it's been touted as the next big thing. And it certainly is an important shift in how companies build, deploy, integrate and manage their software assets across a heterogeneous infrastructure. However, just as the New Economy didn't toss out the fundamentals of business, the Internet and web services don't toss out your existing infrastructure or the fundamentals of how you run IT.

When you peel back the hype, the promise of web services is about easy connections among different IT systems; connections among collaborating companies; the move from traditional vertical corporations—which often own every link in their supply chains—to horizontally networked companies that rely on upstream and downstream connections across the business and with other businesses; a layer of software that sits on top of an application and connects it to any other web service-friendly applications quickly, cheaply and flexibly—automating the flow of information between a company and its business partners.

Just like the mainframe and client-server worlds before it, the Internet and web services world needs appropriate tools to build, deploy, integrate and manage.

Most of the focus in the past two years has been about the "build" and "deploy" elements. The next wave of this discussion is integration, and we've been working closely with BEA and other companies during the past year through the Web Services Interoperability Consortium. Collectively, we want to make sure that the web services world doesn't fall victim to the proprietary fiefdoms that make life difficult for all of our customers.

From all our conversations with customers, analysts and partners, management is the next major barrier to mainstream web services adoption. As our customers have learned over the past 20 years through trial and error, management cannot be an afterthought—it must be part of the design, part of the deployment and part of the IT infrastructure.

We see web services offering a host of new tools that can help customers turn complexity into simplicity, and accelerate their return on IT. The tools, however, are only as good as the management. And that's where HP can make a valuable contribution to our customers, partners and the industry. We intend to take advantage of that opportunity, and we'll do it through HP OpenView and HP Services.

OpenView is the most advanced management solution for the discovery and automation of hardware, software and IT application services. Forrester ranks us in their "Visionary" category as a dynamo for next-generation management of infrastructure, and we're the only large vendor in that category.

For web services, we are already delivering valuable innovations within OpenView that help companies manage their web services deployments—regardless of vendor. The HP OpenView suite can now help customers manage and optimize all of their infrastructure components, including application servers and their Web services environment.

HP OpenView Transaction Analyzer is the industry's first major solution that automatically isolates performance bottlenecks. OpenView Transaction Analyzer uses transaction management APIs—co-developed with BEA—to monitor WebLogic Server.

In addition, HP OpenView Smart Plug-Ins provide in-depth management interfaces for BEA, Microsoft and Sun servers. And HP OpenView Internet Services has become the industry's most robust tool for service-driven management.

Now for the news: To further demonstrate our commitment to web services management, we are announcing today four new investments that we're making to overcome the management barrier to full-scale web services adoption.

First, we have created a dedicated Web Services Management Organization within our software business—the same group that brings 20 years of network and systems management experience to the table with OpenView, OpenCall and Utility Data Center. Some of our best engineers are working day-in and day-out to develop new technologies that enable better management of web services with HP OpenView. They're also integrating existing web services standards like XML, WSML and UDDI into OpenView systems management tools.

Second, together with BEA, HP has created a dedicated web services management and deployment practice for J2EE solutions within HP Services. We already have more than 500 consultants trained to help customers deploy J2EE solutions faster, cheaper and more effectively. By the end of 2003, that force will total more than 1,000—all focused on developing repeatable J2EE solutions. This consulting team builds on the .NET services practice that we announced last fall.

Third, we are formally unveiling a suite of software components called the HP OpenView Web Services Management Engine. This engine allows customers to intercept web service requests and actively manage the actual web service as opposed to managing the platform where a web service resides.

Together with the Transaction Analyzer, Smart Plug-Ins and Internet Services already built into the OpenView suite, we can now deliver response time monitoring and diagnostics to simplify the management of any service-driven environment.

Finally, in keeping with our commitment to standards, we plan to make a major contribution to the industry that packages our expertise into something everyone can use for free—with no strings attached. We'll even let our competitors use it.

HP is working with partners such as BEA, Iona, TIBCO and webMethods on the formulation of web services management standards that will help the industry. HP will contribute a web services management framework to the OASIS Distributed Management working group within the next few months.

The extensible framework provides a way to model, design relationships, and interact with a web services environment. It will enable customers to architect management-ready systems for immediate integration with leading management tools—all based on web services standards.

What these initiatives demonstrate is that HP is committed to working with BEA, other partners, and many of you to make web services management a reality. It's not something we're doing because it's the next big thing, or a new brand of pixie dust or business binoculars. It's something we're doing because it will help our customers achieve more cost-effective IT, more responsive IT, more integrated IT—a better return on their IT investments.

It is this focus on the customer—on driving the solutions that meet your needs—that makes HP/BEA such a compelling alternative to IBM. At the heart of our partnership—and our competitive differentiation—is our joint, genuine commitment to open standards, interoperability and lower total cost of ownership.

I want to talk briefly about each of these three areas and how HP and BEA are aligned to meet your needs.

To begin with, HP and BEA are both leaders in open standards in hardware, operating systems and software infrastructure solutions.

Where the BEA products easily plug into different operating systems, databases and management vendors, IBM pushes its own proprietary products, and in many cases, locks customers into its world. Whatever IBM's marketing rhetoric suggests, IBM is providing vertically integrated, monolithic solution stacks just like it did in the 1980s—the old, one-stop shop pitch. Talk about time machines.

At HP, we believe the use of standards-based components and computing architectures are essential to driving down IT acquisition costs. It's why we are committed to supporting Itanium at the processor level and Linux, Windows and UNIX at the OS level. By embracing standards-based components, we give our customers flexibility and choice at lower costs. Importantly, this strategy acknowledges that heterogeneity or diversity in the data center is not only embracing reality, it's a good thing—just as diversity is good in every other aspect of business. Unlike IBM, when we say heterogeneity, we actually mean it.

When it comes to interoperability, HP and BEA provide a complete heterogeneous J2EE platform for distributed applications and the integration of legacy and .NET environments. And we do it across multiple platforms and operating systems, including HP-UX, OpenVMS, NonStop Kernel, and Tru64 UNIX. We do it on Itanium 2-based systems, and we do it on Windows 2000, Windows NT and Linux. BEA's WebLogic Server is available on all of HP's key platforms and operating systems.

Just this month, we announced that BEA and HP are working together to make it easy for mobile operators to deploy new mobile services using HP's Mobile Service Delivery Platform—BEA's WebLogic Server is a core component of this new platform developed by HP.

We're also working together to aggressively target the Linux market, building marketing and sales programs that leverage existing BEA and HP channels. So, when it comes to the relationship between HP and BEA, interoperability and choice aren't just buzz words—they are competitive advantages at the core of our alliance that we deliver to our customers every day.

That brings me to total cost of ownership, which is where we have a significant advantage over IBM.

IBM goes in with WebSphere. Interestingly, WebSphere is a brand that consists of approximately 344 different, non-integrated products. These products are incompatible and use radically different architectures. It means that all of these programs need to be hard-coded in order to work together in your environment, in part because their different products have different standards. WebSphere versions 3, 4 and 5 have three different code bases, each requiring a different skill set. As a result, WebSphere configuration costs are significantly higher than those for BEA/HP products.

By IBM's own admission, a customer should expect to spend $12 on IBM services for every $1 spent on software. Contrast that to HP and BEA, where the services cost can be as little as $6 or $7 for every $1 spent on hardware. So, the total cost of ownership is cut in half.

Customers are recognizing the difference. In several recent joint wins, customers have chosen to deploy critical applications with BEA WebLogic Server and HP, rather than WebSphere and IBM hardware, because we could deliver a lower total cost of ownership, more efficient and effective service, and faster time to solution. It's part of the reason why BEA license revenue on HP platforms went from 8 percent nine months ago to 23 percent last quarter.

Don't take my word for it, ask the Bank of New York. The bank teamed with BEA, Intel and HP to investigate open standards-based technologies that would improve traditional levels of performance and reliability, while enhancing the Bank's ability to deploy new services and, in the long term, reduce costs.

The BEA/Intel/HP solution demonstrated 70 percent higher transaction throughput while offering a cost savings of 46 percent over the bank's current RISC architecture. In addition, the bank can expect additional savings from lower platform costs, increased flexibility and agility, lower deployment costs, reduced downtime and lower support costs.

That is the same winning advantage we offer to all of you. We really believe that the alliance between BEA and HP helps you turn IT into a competitive weapon that can help you win in the marketplace. For those companies that understand the link between business and IT, who seek to capture the best of the old and the best of the new, we are a powerful alternative to IBM.

Thank you for giving us the opportunity to show you what we can do, particularly in these tumultuous times. Despite all the challenges and uncertainties of our world today, I believe there has never been a better, more hopeful time to be part of an industry that is all about progress.

Thank you.

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