IBM Corp. has been ditching its hardware units as part of its strategy to counter the lagging sector, picking up numerous software companies instead, including DataMirror Corp. for $161 million last week. Hewlett-Packard Co. is following suit. HP of Palo Alto, Calif., is spending $1.6 billion for Opsware Inc. and about $214 million for Neoware Inc., a maker of thin client computing and virtualization solutions.

HP's software division has been posting strong numbers. For the second quarter, the division's revenue grew 58% over the prior year period to $523 million. This was due largely to the purchase of Mercury Interactive Corp. for $4.5 billion. "While we still have considerable work ahead of us," says chairman and CEO Mark Hurd of HP's $3 billion of revenue growth and record cash flow from the software division, "I am confident we can continue to execute with discipline and deliver strong financial returns."

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