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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended January 31, 2003

OR

For the transition period from                    to                

Commission file number: 000-32377

OPSWARE INC. (formerly LOUDCLOUD, INC.)

(Exact name of registrant as specified in its charter)

599 N. Mathilda Avenue, Sunnyvale, California 94085

(Address, including zip code, of Registrant’s principal executive offices)

(408) 744-7300

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, par value $0.001 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  x    NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES  ¨    NO  x

The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price as reported by the NASDAQ National Market of the registrant’s Common Stock on July 31, 2002, the last day of the registrant’s most recently completed fiscal quarter, was approximately $49.7 million. Shares of voting stock held by each officer and director and by each person who owns 5% or more of the outstanding voting stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of April 1, 2003, 78,796,376 shares of the registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the registrant’s definitive proxy statement for the registrant’s Annual Meeting of Stockholders, tentatively scheduled for June 24, 2003.

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Cautionary Statement Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements. These statements relate to our, and in some cases our customers’ or partners’, future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements include, but are not limited to, statements regarding anticipated market trends and uncertainties, revenue generated from the sale of our Opsware software, cost of revenue, operating expenses, loss for the fiscal year for both income tax and financial statement purposes, anticipated capital expenditures and lease commitments, the adequacy of our capital resources to fund our operations, operating losses and negative cash flow, the anticipated increase in customers and expansion of our product offerings and target markets, our expectation with respect to our obligations to indemnify EDS, our expectations regarding ongoing development of our Opsware software and other technical capabilities, and potential expansion in our direct and indirect sales organizations.

These statements involve known and unknown risks, uncertainties and other factors that may cause industry trends or our actual results, level of activity, performance or achievements to be materially different from the outcomes expressed or implied by these statements. These factors include those listed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” in this Annual Report on Form 10-K.

Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We will not necessarily update any of the forward-looking statements after the date of this Annual Report on Form 10-K to conform these statements to actual results or changes in our expectations, except as required by law. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Annual Report on Form 10-K.

The consolidated financial statements and related information contained in this Annual Report on Form 10-K reflect our results as they existed for the fiscal year ended January 31, 2003. On August 15, 2002, we completed the sale of our Managed Services Business to EDS. As a result, the financial information for the fiscal year ended January 31, 2003 and other periods presented is not related to our Software Business and is not indicative of future results from our Software Business.

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PART I

ITEM 1.     BUSINESS

Overview

We are a provider of data center automation software for enterprises, government agencies and service providers seeking to reduce costs and increase the quality of data center operations. In this annual report, we refer to this business as our Software Business. Our software, which we refer to as the Opsware System, automates key server and software operations in data centers, including provisioning, changing, configuring, scaling, securing, recovering, auditing, and reallocating servers and business applications. The Opsware System works across geographically disparate locations and heterogeneous data center environments. By using the Opsware System, our customers can more quickly deploy new servers and applications, speed operations to respond quickly to changing business needs, and increase the efficiency of their data center operations. The Opsware System enables our customers to reduce the number of IT staff required to operate the data center, better utilize server and software assets, increase IT efficiencies and achieve higher service quality.

Demand for our software products is driven by, among other things, the migration from client server based architectures to web based architectures and the emergence of the Linux operating system running on Intel based hardware, the existence of complex and heterogeneous server environments and applications, the need to protect systems from security vulnerabilities and the need to quickly and more cost-effectively deploy servers and applications, manage frequent changes and ensure application reliability. These challenges require in-house IT expertise across a broad range of technologies and a sizable IT staff, including a host of technical specialists. It is often difficult, time consuming and costly to hire and retain these experts. Even if businesses can effectively hire and retain these experts, using this talent to maintain a business’ IT infrastructure is inefficient as it diverts these resources from enhancing a business’ core competencies.

As a result, businesses are increasingly seeking technologies that can automate operations and increase IT efficiency to provide continuous operation of their IT infrastructure and reduce operating expenses. The Opsware System is designed to effectively manage the increasing complexity of IT operations, by offering a reliable, secure, scalable and cost-effective software solution that allows our customers to focus on their core competencies and achieve greater functionality and flexibility than they could otherwise attain in the absence of such technology.

Key Developments in Fiscal 2003.    Prior to August 2002, we primarily provided managed Internet services for corporations and government agencies that operate mission-critical Internet applications. In this annual report, we refer to this business as our Managed Services Business. We used our proprietary Opsware automation technology in the Managed Services Business, and have since developed this technology into our Opsware System software. In August 2002, we sold our Managed Services Business to Electronic Data Systems, or EDS, for a total purchase price of $63.5 million in cash. In addition to the license and maintenance agreements entered into pursuant to the asset purchase agreement, contemporaneous with execution of the asset purchase agreement, we executed separate license and maintenance agreements with EDS pursuant to which we granted EDS a non-exclusive, worldwide hosting and integration license whereby EDS will have certain rights to use our Opsware software. Under the Opsware license and maintenance agreement, EDS will pay us (subject to our developing specified features and functions) a minimum license and maintenance fee of $52.0 million in the aggregate over a term of three years. Subsequent to the fiscal year ended January 31, 2003, we delivered and received acceptance of all of the specified features and functions owing to EDS. We believe we have sufficient objective and reliable evidence of fair value for both the value of the Managed Services Business sold to EDS and the $52.0 million license and maintenance agreement (based on renewal rates). We further believe that the $52.0 million license and maintenance agreement is a separate earnings process and does not affect the quality of use or the value to EDS of the $63.5 million sale of the Managed Services Business. Accordingly, we will recognize the fees from EDS as license revenue over the remaining term of the license, beginning in the three month period ended April 30, 2003. We expect that our operating results will be largely dependent on our relationship with EDS for the foreseeable future.

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On June 14, 2002, we repurchased from Morgan Stanley & Co. Incorporated our 13% Senior Discount Notes due 2005 for $42.0 million of cash and issued 2,046,385 shares of our common stock, representing $3.0 million worth of our common stock at that time. As a result, an extraordinary gain of $8.7 million was recognized during the fiscal year ended January 31, 2003. The extraordinary gain was calculated by taking the difference between the carrying value of the notes at the time of retirement and the $45.0 million given in total consideration.

Products and Services

The Opsware System automates key server and software operations in data centers, including provisioning, changing, configuring, scaling, securing, recovering, auditing, and reallocating servers and business applications across geographically disparate locations and heterogeneous data center environments. Opsware System 3.6, released in February 2003, is our most recent release of the Opsware System.

Some of the key capabilities and benefits of the Opsware System include the following:

The Opsware System is comprised of two primary layers, the Automation Platform and Automation Subsystems. Users access and interact with the Opsware System through the Opsware Command Center, a secure web-based console.

Automation Platform

The Opsware System’s Automation Platform controls and automates operations in single locations and across geographically disparate application environments. The Automation Platform provides the operations knowledge for a variety of operating systems and software applications and utilizes this knowledge to model and

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test the impact of proposed operations on production servers and applications before these operations are actually executed in the operations environment. In addition to helping ensure accurate and efficient operations, the Automation Platform helps reduce the need for IT organizations to build and maintain deep expertise across a broad range of technologies. The Automation Platform is comprised of three primary components: the Software Tree, the Environment Tree and the Change Simulation and Modeling Engine. The Software Tree provides knowledge on a variety of software products and operating systems and maps relationships between these products and systems to facilitate key operations like installation, patch deployment and updates. The Environment Tree captures characteristics about a customer’s unique data center environment. The Change Simulation and Modeling Engine enables users to first model and simulate desired operational changes to their environment before propagating these changes to production servers and applications, thereby minimizing the risk of downtime in the production environment. The Automation Platform is designed to ensure operations are executed accurately and consistently. Customers benefit from higher operations quality, improved security, higher first-try success rates and, consequently, reduced downtime.

Automation Subsystems

The Opsware System’s Automation Subsystems are the components that automate particular IT processes performed by users in the operational environment. The Automation Subsystems are designed to replace and automate ad hoc, error-prone, manual processes such as the provisioning of operating systems and applications and the management of changes to existing servers. Automation Subsystems support multiple platforms and are designed to automate both new and existing data center environments. The Automation Subsystems available with Opsware System 3.6 include:

Operating System Provisioning.    The Operating System Provisioning Automation Subsystem enables customers to automate the process of deploying, installing and configuring operating systems across hundreds to thousands of geographically disparate servers.

Software Provisioning.    The Software Provisioning Automation Subsystem enables customers to automate the process of deploying, installing and configuring software applications, such as databases, application servers, web servers, directories, messaging products and enterprise integration products, across hundreds to thousands of geographically disparate servers.

Patch Management.    The Patch Management Automation Subsystem allows customers to quickly and accurately identify servers that need to be patched and automates the process of deploying and configuring patches across a large number of servers. The Patch Management Automation Subsystem is designed to enable customers to dramatically reduce exposures related to security breaches within their IT environment.

Configuration Tracking.    The Configuration Tracking Automation Subsystem allows customers to track, store and recover critical software configuration information on each server within their environment. This subsystem provides customers with the ability to correct inadvertent configuration mistakes, recover from a system failure, diagnose configuration-related problems and track security breaches.

Code and Content Deployment and Rollback.    The Code and Content Deployment and Rollback Automation Subsystem enables customers to deploy software code or content that often sits on top of traditional third-party software application as part of a multi-tier application. In addition, this subsystem enables customers to quickly rollback the code or content to the last known good state of operations in the event that the new code or content introduces vulnerabilities or performance degradation to the environment. This subsystem is designed to simplify the process of moving applications from development organization to live operations.

Multimaster Replication.    The Multimaster Replication Automation Subsystem facilitates rapid disaster recovery by replicating the Opsware System’s underlying configuration database across multiple data centers in which the Opsware System is located. In the event that any given data center is rendered non-operational because of a disaster, this configuration information can be utilized by an Opsware System located in a separate data center to automate the rebuilding of servers and applications. This subsystem is

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Maintenance and Technical Support

We offer gold and silver levels of telephone, email and remote access maintenance and support packages to our customers. Our gold support level entitles customers to unspecified future major releases and upgrades to the current version of the Opsware System used by them, if and when commercially released. Our silver support level entitles customers to unspecified future regular releases and upgrades to the current version of the Opsware System used by them, if and when commercially released. From time to time, our customers request a dedicated single point of contact on a time and materials basis.

Professional Services

Our professional services organization provides product training, consulting and implementation services to assist customers in maximizing the benefits of the Opsware System.

Customers

We sell our Opsware System software to enterprises, government agencies and service providers seeking to reduce costs and increase the quality of data center operations. We have a limited number of customers including EDS, certain agencies of the U.S. government, Comcast, Gateway Computers, New Breed, and Metlife. For the fiscal year ended January 31, 2003, no customer accounted for more than 10% of our net revenue. We expect that our operating results will be largely dependent on our relationship with EDS for the foreseeable future. The loss of EDS as a customer could have a material adverse effect upon our business and financial condition.

Industry Relationships

BEA Systems.    We have entered into a partnership agreement with BEA to automate server and application operations of BEA WebLogic environments, which is designed to help customers simplify and lower the cost of managing their data center environment. As part of the agreement, BEA has selected the Opsware System as a preferred solution for automated deployment, provisioning, configuration and change management of BEA WebLogic Servers. We currently offer ISMs that encapsulate the software operations knowledge needed to install and manage WebLogic across large-scale environments. In addition, we have entered into a channel license agreement with BEA under which BEA will refer prospects for the Opsware System to us from BEA’s existing customer base.

Sun Microsystems.    We have been selected by Sun as a member of its Blade Solutions Community to provide customers with a portfolio of integrated, highly reliable, flexible and scalable solutions for the management of blade servers. In connection with this partnership, we developed Opsware Blade Edition, a technology that automates operating system and application provisioning on blade servers while providing the other benefits of the Opsware System. Opsware Blade Edition is specifically designed to automate management of a large number of blade servers, whether located in a single data center or across multiple data centers.

Research and Development

Our research and development organization designs, develops and releases the technologies that we offer to our customers as well as the services that we use internally to streamline customer deployment and support. The goal of this organization is to bring new products and new versions of existing products to market quickly in order to keep pace with customer demands. In this way, our research and development organization is

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responsible for the extension of our technology’s capabilities. During the fiscal years ended January 31, 2003, 2002 and 2001, our research and development expense was $12.7 million, $21.0 million and $17.9 million, respectively.

Sales and Marketing

As of April 1, 2003, we had 24 full-time employees in sales and marketing. We sell and market our services primarily in the United States through a direct sales force. We are selectively expanding our number of direct sales representatives to enhance our geographic coverage. In addition, we intend to develop indirect channels with corporate partners, such as distributors, value-added resellers, hardware providers and systems integrators.

We focus our marketing efforts on increasing brand recognition, market awareness and lead generation. We intend to continue to invest in building our brand recognition through public relations programs, interactions with industry analysts, trade shows and industry conferences.

Competition

Our competitors include large software and systems companies as well as small, privately-held companies. The market for our technology is relatively new and therefore subject to rapid and significant change. While we believe our technology is more comprehensive than and superior to that of our competitors, we cannot assure you of the success of our strategy going forward. Our competitors may succeed in developing technologies and products that are more effective than our software, which could render our products obsolete and noncompetitive. Some of our competitors have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, more developed infrastructures, greater brand recognition, international presence and more established relationships in the industry than we have. As a result, some of our competitors may be able to develop and expand their technology offerings more rapidly, adapt to new or emerging technologies and changes in customer requirements more quickly, take advantage of acquisitions and other opportunities more readily, achieve greater economies of scale, devote greater resources to the marketing and sale of their technology and adopt more aggressive pricing policies than we can. Some of our competitors have lower priced offerings and offer point solutions that may be easier to sell and demonstrate to prospective customers. In addition, certain large competitors may be able to distribute their software products at minimal cost or free of charge to customers. Furthermore, the open source community may develop competing software products which could erode our market share and force us to lower our prices.

Because some of our current competitors have pre-existing relationships with our current and potential customers, we might not be able to achieve sufficient market penetration to achieve or sustain profitability. These existing relationships can also make it difficult for us to obtain additional customers due to the substantial investment that these potential customers might have already made based on our competitors’ technology. Furthermore, our competitors may be able to devote substantial resources aimed at preventing us from establishing or enhancing our customer relationships.

Our competitors and other companies may form strategic relationships with each other to compete with us. These relationships may take the form of strategic investments, joint-marketing agreements, licenses or other contractual arrangements, any of which may increase our competitors’ ability to address customer needs with their product offerings. Our competitors may consolidate with one another or acquire other technology providers, enabling them to more effectively compete with us. This consolidation could affect prices and other competitive factors in ways that could impede our ability to compete successfully and harm our business.

Intellectual Property

We rely on a combination of patent, trademark, trade secret, copyright and other laws and contractual restrictions to protect the proprietary aspects of our products and services. These legal provisions afford only

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limited protection. We have approximately 50 pending patents, but none have issued to date. It is difficult to monitor unauthorized use of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States, and our competitors may independently develop technology similar to ours. We will continue to assess the necessity for additional intellectual property protections for those aspects of our technology that we believe constitute innovations providing significant competitive advantages.

We routinely require our employees, customers and potential business partners to enter into confidentiality and nondisclosure agreements before we disclose any sensitive aspects of our technology, services or business plans to them. In addition, we require employees to agree to assign to us any proprietary information, inventions or other intellectual property they generate while employed by us. Despite our efforts to protect our proprietary rights through confidentiality and license agreements, unauthorized parties may attempt to copy or otherwise obtain and use our services or technology. These precautions may not prevent misappropriation or infringement of our intellectual property.

Employees

As of April 1, 2003, we had 104 full-time employees. Our future success will depend upon our ability to attract, integrate, retain and motivate highly qualified technical and management personnel, for whom competition can be intense. None of our employees is covered by a collective bargaining agreement. We believe our relations with our employees are good.

Available Information

We were incorporated in September 1999 as a Delaware corporation. Our Internet website is located at http://www.opsware.com. We make available free of charge on our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

The public may also read and copy any materials we file with the Securities and Exchange Commission at the Securities and Exchange Commission’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission also maintains an Internet website that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Securities and Exchange Commission. The Securities and Exchange Commission’s Internet website is located at http://www.sec.gov.

ITEM 2.    P ROPERTIES

Our corporate headquarters are located in Sunnyvale, California, where we rent approximately 75,000 square feet under a lease expiring in 2010, of which we sublease approximately 50,000 square feet to EDS through August 2004. We are currently under obligation for additional leased space in Sunnyvale, CA terminating in June 2003 that totals approximately 120,000 square feet. Of the 120,000 square feet, approximately 2,000 square feet are subleased and 118,000 square feet are currently available and unoccupied. We are also currently under obligation for additional leased space in Sunnyvale, CA terminating in November 2005 that totals approximately 30,000 square feet, all of which are subleased. In addition, we have numerous operating leases for field sales offices. We believe that our facilities are adequate to meet current requirements.

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ITEM 3.     LEGAL PROCEEDINGS

On April 9, 2003, we entered into a stipulation of settlement with the plaintiffs in connection with the consolidated securities class action lawsuit related to our initial public offering claiming that we, certain of our officers, directors and the underwriters of our initial public offering violated federal securities laws by providing materially false and misleading information in our prospectus. The stipulation of settlement, which is subject to court approval, provides for the full and final settlement and dismissal and release of all litigation brought by the plaintiffs and an insignificant settlement payment. The settlement payment will be paid by our director’s and officer’s insurance policy and, therefore, will not impact our financial position or results of operations.

On March 7, 2003, EDS filed suit against Knight Ridder Digital, a former customer of ours that was transferred to EDS as part of the sale of our Managed Services Business. On March 24, 2003, we received notice that Knight Ridder Digital filed a cross complaint against both EDS and us in the Superior Court of California, County of Santa Clara, alleging in part that we breached our customer service agreement with Knight Ridder Digital by assigning the agreement to EDS. The cross complaint seeks an unspecified amount of damages and asks for certain equitable relief. We believe that we did not breach the customer service agreement and will defend ourselves vigorously. On March 31, 2003, we filed a cross complaint against Knight Ridder Digital alleging theft of trade secrets and breach of contract, among other claims, and we joined in EDS’s then-pending motion for a preliminary injunction. The hearing on that motion is set for May 8, 2003. On April 10, 2003, we entered into a Stipulation and Order with EDS and Knight Ridder Digital limiting Knight Ridder Digital’s use of certain intellectual property pending that hearing. The outcome of litigation is inherently uncertain, and there can be no assurance that we will not be materially affected. We anticipate that we will incur ongoing litigation expenses in connection with this litigation and believe that EDS is obligated to indemnify us for these expenses pursuant to the terms of the asset purchase agreement.

On November 26, 2002, we entered into a settlement agreement with Frontera Corporation relating to a lawsuit brought by Frontera on July 16, 2002 in the Superior Court of California, County of Santa Clara, claiming that we failed to comply with our obligations under the agreement and plan of merger and reorganization with Frontera and seeking to compel us to consummate the acquisition, or in the alternative, pay damages. The settlement agreement resulted in a full and final settlement and dismissal of all litigation brought by Frontera and a release and termination of the obligations of both parties under the merger agreement. Pursuant to the settlement agreement, we are not required to issue any shares of our common stock to Frontera.

On July 31, 2002, we received notice that Qwest Communications Corporation filed a demand for arbitration under the Commercial Arbitration Rules of the American Arbitration Association, claiming that we have breached our amended and restated ethernet collocation internet access service agreement, amended and restated reseller agreement and confidentiality agreement we entered into with Qwest in fiscal 2002. Qwest is seeking monetary damages, title to certain items of equipment and declaratory relief. Under the amended and restated ethernet collocation internet access service agreement, we received a $7.5 million non-refundable prepayment from Qwest in fiscal 2002 in consideration for providing services in connection with the provisioning and maintaining of three of Qwest’s data centers and the migration of our Managed Services Business operations into these three data centers. The prepayment received from Qwest was originally included in deferred revenue and the residual balance as of January 31, 2003 has since been reclassified to accrued data center facility costs. We believe that we have not breached any of the agreements and will defend ourselves vigorously. However, the outcome of arbitration is inherently uncertain, and there can be no assurance that we will not be materially affected. We anticipate that we will incur ongoing expenses in connection with this arbitration.

In the future, we may be subject to other lawsuits. Any litigation, even if not successful against us, could result in substantial costs and divert management’s attention and other resources away from the operation of our business.

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

Market for Our Common Stock

Our common stock has been listed on the NASDAQ National Market under the symbol “OPSW” since our name change from Loudcloud, Inc. to Opsware Inc. in August 2002. Prior to that time, our common stock was listed on the NASDAQ National Market under the symbol “LDCL.” The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock as reported by the NASDAQ National Market since our initial public offering of common stock at $6.00 per share on March 9, 2001. Prior to this time there was no public market for our stock.

We have never paid cash dividends and do not plan to do so in the foreseeable future. According to the records of our transfer agent, at April 1, 2003, there were approximately 566 stockholders of record of our common stock. Because many brokers and other institutions hold stock on behalf of our stockholders, we believe that the total number of beneficial holders of our common stock is greater than that represented by these record holders.

Recent Sales of Unregistered Securities

We did not sell any unregistered securities during the fiscal quarter ended January 31, 2003.

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ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data below should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The selected consolidated statement of operations data for the years ended January 31, 2003, 2002, and 2001 and the selected consolidated balance sheet data as of January 31, 2003 and 2002 are derived from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. The selected consolidated statement of operations data for the period from inception (September 9, 1999) to January 31, 2000 and the selected consolidated balance sheet data as of January 31, 2001 and 2000 are derived from our audited consolidated financial statements included with the Annual Report on Form 10-K filed on May 1, 2002. On August 15, 2002, we completed the sale of our Managed Services Business to EDS. As a result, the financial information for the fiscal year ended January 31, 2003 and other periods presented is not related to our Software Business and is not indicative of future results from our Software Business.