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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, 2005

OR

For the transition period from                      to                     

Commission file number: 000-32377

OPSWARE 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  x    NO  ¨

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, 2004, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $316.4 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, 2005, 98,330,473 shares of the registrant’s Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates certain information by reference from the registrant’s definitive proxy statement for the registrant’s Annual Meeting of Stockholders, scheduled for June 21, 2005.

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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, financial results, operating results, revenue generated from the sale of our software products, including our license and maintenance agreement with EDS, operating expenses, anticipated capital expenditures and lease commitments, the adequacy of our capital resources to fund our operations, operating losses and cash flow, the anticipated increase in customers and expansion of our product offerings and target markets, our expectations regarding ongoing development of our software products and other technical capabilities, formation of strategic partnerships 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-Risk Factors” and elsewhere 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. Except as required by law, we will not necessarily update any of the forward-looking statements after the date of this Annual Report on Form 10-K whether as a result of new information, future events or otherwise. 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 balance sheet results as of January 31, 2005 and 2004, and our statements of operations, stockholders’ equity and cash flows for each of the three years ended January 31, 2005, 2004 and 2003. On August 15, 2002, we completed the sale of our Managed Services Business to EDS and are now focused solely on our Software Business. As a result, the historical financial information relating to the periods prior to August 15, 2002 is not related to our Software Business and is not indicative of future results from our Software Business.

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PART I

Overview

We are a provider of IT automation software products for enterprises, government agencies and service providers seeking to reduce the cost and improve the quality of IT operations. In this annual report, we refer to this business as our Software Business. Our software products automate formerly manual, time-consuming and error-prone tasks, including the provisioning, changing, auditing, patching, reporting, configuring, scaling, securing and recovering of servers, software, business applications and network devices. In addition, our software products automate IT operations across servers, software, applications and network devices and discover and track assets across the IT environment. Our product lines include the Opsware Server Automation System (OSAS), the Opsware Network Automation System (ONAS) and the Opsware Asset Management System (OAMS). OSAS automates key server, software and application operations. ONAS automates network device operations for large data centers and remote locations. OAMS enables IT organizations to discover IT hardware and software assets, track these assets on an ongoing basis and reduce costs of excess hardware and software purchases, unnecessary maintenance renewals, and underutilization of idle and redundant assets.

Our products work across geographically disparate locations and heterogeneous IT environments consisting of UNIX, Linux and Windows servers and a wide range of software infrastructure and applications, as well as network devices including switches, routers, load balancers and firewalls. By using our IT automation software, we believe customers can lower their IT operational costs, more quickly deploy new servers, applications and network infrastructure, speed operations to respond faster to changing business needs, increase the efficiency of server and network administrators, achieve higher service quality and security and improve tracking of IT assets.

Businesses and government agencies are increasingly turning to IT automation solutions to reduce operational costs, improve IT efficiencies, centralize and remotely manage operations, ensure continuity of operations and reduce the costs of disaster recovery. Demand for our software is driven by the rapid growth of servers and network devices across IT organizations that is resulting from the migration of client-server based applications to web-based applications, the increase in the numbers of Windows servers, the rapid adoption of the Linux platform, the growth of Intel-based servers and the increase in the number of network devices within IT environments. Rapid server growth in data centers and at remote locations and increasing application complexity across the IT environment have resulted in a corresponding escalation in labor costs, a degradation in operations quality and a security crisis within IT organizations. In addition, we believe that several other factors are driving the demand for our products, including the need to protect servers and network infrastructure from security vulnerabilities, to quickly and more cost-effectively deploy servers, applications and network infrastructure, to track hardware and software assets and labor costs, to manage frequent changes across servers and network devices and the need to ensure servers, network devices and applications comply with corporate and regulatory compliance policies such as the Sarbanes-Oxley Act, HIPAA and COBIT. Our products provide customers with a software solution that is reliable, secure, and scalable and allows them to reduce operational costs, increase IT efficiencies and improve operations quality.

Products and Services

Opsware Server Automation System

OSAS automates key server, software infrastructure and application operations in data centers and remote locations, including provisioning, changing, patching, reporting, configuring, scaling, securing, recovering, auditing, and reallocating servers and business applications across geographically disparate locations and heterogeneous IT environments.

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Some of the key capabilities and benefits of OSAS are:

Opsware Network Automation System

In February 2005, we completed our acquisition of Rendition Networks, Inc., a software and services provider based in Redmond, Washington. As a result of the acquisition, we now offer our ONAS product.

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ONAS automates key network device operations including the management of switches, routers, firewalls and load balancers in data centers and remote locations. ONAS automates the full lifecycle of network infrastructure operations including provisioning, changing, auditing, patching, reporting, configuring, scaling, securing and recovering network devices across geographically disparate locations and heterogeneous IT environments.

Some of the key capabilities and benefits of ONAS are:

Opsware Asset Management System

Our OAMS product enables IT organizations to discover IT hardware and software assets, track assets on an ongoing basis and reduce the expense resulting from excess hardware and software purchases, unnecessary maintenance renewals, and underutilization of idle and redundant assets. OAMS also enables IT organizations to accurately track and report on enterprise wide hardware and software asset deployment and utilization, and provides help desk staff with detailed visibility into current and historical hardware and software configuration and usage information, aiding in rapid problem diagnosis, troubleshooting and problem resolution.

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Maintenance and Technical Support

We offer telephone, email and remote access maintenance and support packages to our customers. Our maintenance and support packages entitle customers to unspecified future maintenance releases, and updates and upgrades to the versions of our products used by them, if and when commercially released. From time to time, our customers request additional support services 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 our software products.

Customers

We sell our OSAS, ONAS, and OAMS product lines to enterprises, government agencies and service providers seeking to reduce costs and increase the quality of data center operations. Our customers include Allmerica Financial, Comcast, EDS, The Home Depot, The Gap, Federal Express, Sallie Mae, Lehman Brothers, Countrywide Financial, Microsoft MSN, BP, T-Mobile, Putnam Investments, Northrup Grumman, and other agencies of the U.S. government. For the fiscal year ended January 31, 2005, EDS and NTT Communications Corporation accounted for 54% and 11% of our net revenues, respectively. 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 would have a material adverse effect upon our business and financial condition.

Industry Relationships

NEC Corporation.    We have entered into a software distribution license agreement with NEC pursuant to which NEC may use, market, sell, and support our software products in Japan. NEC intends to sell our software products in connection with its VALUMO Platform technology, as both a standalone product or integrated with other VALUMO products that support mission critical systems. In January 2005, we entered into an amendment of our software distribution license agreement with NEC to enable NEC to utilize OSAS for its internal use.

Nortel.    Our distribution relationship with Nortel allows all resellers in their Select Product Program in North America to purchase ONAS.

In addition, we have a number of relationships with resellers and system integrators to support our sales efforts and professional services obligations with our U.S. government customers.

Research and Development

As of January 31, 2005 and April 1, 2005, we had 90 and 113 full-time employees in research and development, respectively. The increase is primarily due to our acquisition of Rendition Networks, Inc. Our

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research and development organization designs, develops and tests the technologies that we offer to our customers as well as the services that we use internally to streamline customer deployment and support processes. 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 responsible for the extension of our technology’s capabilities. During the fiscal years ended January 31, 2005, 2004 and 2003, our research and development expense was $14.3 million, $8.7 million and $12.7 million, respectively. The fiscal year 2003 amounts include results from our Managed Services Business prior to the sale of this business on August 15, 2002.

Sales and Marketing

As of January 31, 2005 and April 1, 2005, we had 54 and 64 full-time employees in sales and marketing, respectively. The increase is primarily due to our acquisition of Rendition Networks, Inc. We sell and market our services in the United States, Europe and Asia Pacific through a direct sales force and indirect channels. We continue to expand the number of direct sales representatives to enhance our geographic coverage. In addition, we intend to develop additional indirect channels with corporate partners, such as distributors, value-added resellers, hardware providers and systems integrators.

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

Competition

Our competitors include large software, hardware 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, each of which may allow them to gain greater market share. 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

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contractual arrangements, any of which may increase our competitors’ ability to address customer needs with their product offerings. Our competitors and other companies may consolidate with one another or acquire other technology providers, enabling them to offer a broader array of products and 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. In addition, to the extent that we seek to expand our product lines, managerial and technical personnel skills and capacity through acquisitions, the trend in the software industry toward consolidation may result in our encountering competition, and paying higher prices, for acquired businesses.

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 limited protection. 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 January 31, 2005, and April 1, 2005 we had 213 and 260 full-time employees, respectively. The increase is primarily due to our acquisition of Rendition Networks, Inc. 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 Securities Exchange Act of 1934, 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.

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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 25,000 square feet to EDS through August 2006. We lease additional space in Sunnyvale, CA terminating in November 2005 that totals approximately 30,000 square feet, which is no longer subleased as of February 15, 2005. We also occupy a facility in Cary, North Carolina, consisting of approximately 13,000 square feet under a lease that terminates in May 2007. As a result of our acquisition of Rendition Networks in February 2005, we now occupy a facility in Redmond, Washington, consisting of approximately 11,000 square feet under a lease that terminates June 1, 2005. In addition, we have a number of operating leases for field sales offices. We believe that our facilities are adequate to meet current requirements.

We currently have no pending or threatened material litigation. In the future, we may be subject to 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.

None.

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PART II

Market for Our Common Stock

Our common stock is listed on the NASDAQ National Market under the symbol “OPSW”. The following table sets forth for each of the two preceding fiscal years the high and low sales closing prices per share of our common stock as reported by the NASDAQ National Market for each full quarterly period within the two most recent fiscal years.

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, 2005, there were approximately 633 stockholders of record of our common stock. Because many brokers and other institutions hold stock on behalf of our stockholders, the total number of beneficial holders of our common stock is greater than that represented by these record holders.

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The selected consolidated financial data below should be read together with Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes thereto in Item 8 “Financial Statements and Supplementary Data.”

On August 15, 2002, we completed the sale of our Managed Services Business to EDS. As a result, the historical financial information relating to the periods prior to August 15, 2002 is not related to our Software Business and is not indicative of future actual results from our Software Business.

Certain reclassifications have been made to prior fiscal year amounts in order to conform to the current fiscal year presentation.

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The following discussion should be read together with the consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward- looking statements that involve risks and uncertainties. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors.” See also “Cautionary Statement Regarding Forward-Looking Statements.” 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, 2005.

Overview

We are a provider of IT automation software for enterprises, government agencies and service providers seeking to reduce the cost and improve the quality of IT operations. In this annual report, we refer to this business as our Software Business. Our software products include the Opsware Server Automation System (OSAS), the Opsware Network Automation System (ONAS) and the Opsware Asset Management System (OAMS). Our software products automate IT operations across servers, software, applications and network devices and discover and track assets across the IT environment. OSAS automates key server, software and application operations. ONAS automates network device operations for large data centers and remote locations. OAMS enables IT organizations to discover IT hardware and software assets, track these assets on an ongoing basis and reduce costs of excess hardware and software purchases, unnecessary maintenance renewals, and underutilization of idle and redundant assets. Our software products automate formerly manual, time-consuming and error-prone tasks, including the provisioning, changing, auditing, patching, reporting, configuring, scaling, securing and recovering of servers, software, business applications and network devices.

Prior to August 2002 (fiscal year ending January 31,2003), we primarily provided managed Internet services for corporations and government agencies operating mission-critical Internet applications. We referred to this business as our Managed Services Business. We used our proprietary Opsware automation technology in the Managed Services Business, and have since integrated this technology into our software products. In August 2002, we sold our Managed Services Business to EDS for a total purchase price of $63.5 million in cash pursuant to an asset purchase agreement. At the time that we entered into the asset purchase agreement, we also entered into a separate license and maintenance agreement with EDS pursuant to which we granted EDS a license whereby EDS has certain rights to use our software products. Under the license and maintenance agreement, EDS agreed to pay us a minimum license and maintenance fee of $52.0 million in the aggregate over a term of three years. The obligation of EDS to pay us was subject to our development of specified features and functions, which we delivered to EDS and for which we received acceptance from EDS during the quarter ended April 30, 2003.

In August 2004, we entered into an amendment of our license and maintenance agreement with EDS whereby EDS agreed to extend the term of the agreement through March 2008 and committed to pay minimum additional license and maintenance fees of approximately $50.0 million over the term of the extended license. These payments are in addition to the previous $52.0 million commitment EDS initially made in August 2002. Pursuant to our amendment of the license and maintenance agreement with EDS, (1) the term of the original agreement was extended through March 2008, (2) EDS is required to pay $2.0 million per month from August 15, 2004 through August 14, 2005 and $1,583,333 per month thereafter through March 2008, (3) EDS’ monthly payments are no longer dependent upon the number of devices being managed by our software products, (4) EDS receives rights to license all future products released by us, when and if available for commercial release, for no additional fee, (5) we agreed to provide certain third-party equipment and software for EDS’ use in connection with our software products, and (6) dedicated Opsware support personnel will continue to be provided to EDS

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for the duration of the extended term. Following the extended term, the agreement will automatically renew at a fee of $1,583,333 per month for five successive one-year terms unless terminated in advance by EDS. Revenue under this arrangement will continue to be recognized based on the lesser of ratably or when monthly payments become due over the extended term of the amended agreement. In October 2004, we entered into a second amendment of the license and maintenance agreement with EDS pursuant to which we provided EDS with $4.0 million for their purchase of computer equipment required to support their planned deployment of our software products within EDS’ facilities. As a result of this amendment, we have no further obligation to provide any equipment to EDS. Accordingly, the amounts paid to EDS pursuant to this second amendment have been charged to cost of sales as a contract acquisition cost.

We expect that our operating results will continue to be largely dependent on our relationship with EDS for the foreseeable future.

In our Software Business, we derive a significant portion of our revenue from sales of software licenses. We sell our products principally through our direct sales force and intend to develop additional indirect channels with corporate partners, such as distributors, value-added resellers, hardware providers and systems integrators. We also derive revenue from sales of annual support and maintenance agreements and professional services. In fiscal 2005 and 2004, 54% and 83% of our revenues came from our license and maintenance agreement with EDS, respectively. Our revenues from these services prior to fiscal 2004 were insignificant because fiscal 2004 was our first full year in our Software Business.

We have various strategic relationships with other technology companies in order to distribute our products and services. For example, in September 2003, we entered into a software distribution license agreement with NEC pursuant to which NEC may use, market, sell, and support our software products in Japan. NEC intends to sell our software products in connection with its VALUMO Platform technology, as both a standalone product or integrated with other VALUMO products that support mission critical systems. In January 2005, we entered into an amendment of our software distribution license agreement with NEC to enable NEC to utilize OSAS for its internal use.

In February 2004, we completed our acquisition of all of the issued and outstanding capital stock of Tangram Enterprise Solutions, Inc. to extend our product offerings and technology capabilities, expand our customer base and increase research and development opportunities. The purchase price of the acquisition was $11.5 million, consisting of $10.0 million of our common stock, or approximately 1.1 million shares, and approximately $1.5 million of direct acquisition costs. See Note 4, “Acquisition of Tangram” in the notes to the consolidated financial statements.

In May 2004, we entered into a settlement agreement with Qwest regarding disputes with Qwest concerning the amended and restated ethernet collocation internet access service agreement, amended and restated reseller agreement and confidentiality agreement that we entered into with Qwest in fiscal 2002. In connection with the settlement, we paid $2.0 million to Qwest and transferred ownership of certain items of equipment to Qwest, with an aggregate fair market value of approximately $170,000. In addition, the parties reserved from the settlement any claims either party may have under the guaranteed term agreement between the parties, up to an aggregate maximum of $300,000. As a result of the settlement, we reversed approximately $4.3 million of previously accrued data center facility costs and recognized a gain on sale of assets and liabilities from Managed Services Business in the consolidated statements of operations for the period ended April