Looking For Clarity In New HP

Channels, however, wasn't one of the areas she singled out. Indeed, at the event, where Fiorina proudly put many battles associated with the $18 billion-plus merger with Compaq behind her, channels barely came up. Plans for increasing direct sales, however, were front and center. They were showcased in formal remarks made by operations head Michael Winkler, as well as by CFO Bob Wayman.

Winkler, for one, showcased the newly launched HP.com supersite, showing how easy it was for customers to buy directly from the company. That, of course, raises a serious question: Can a company focused on increasing direct sales maintain good, healthy relations with partners?

Certainly, Kevin Gilroy, who oversees channel efforts for the company's personal systems group, and Dan Vertrees, who does the same for the company's enterprise systems group, say absolutely. But there are issues partners need to be aware of. HP wants partners to evolve their business models in ways some partners may not like. Gilroy, for example, says partners need to develop greater solutions expertise. That way, they won't be upended by low-margin product sales that don't go their way.

But there's a small catch to this theory. Selling solutions means selling addi-

tional services, as all partners know. And that's something that HP's services arm is very interested in doing. Of course, there's a policy in place that's supposed to mitigate conflict between HP's direct efforts and those of its partners. That's the vaunted Hard Deck program. But given HP's most recent quarter, in which IT services revenue was down by 6 percent sequentially and by 4 percent year-over-year, one can only wonder how much pressure there is internally to let the services arm sell to a broad base of customers. That's especially true now that the Compaq services unit, which has greater down-market skills, has joined the fray. No organization can stand idle hands, but that's exactly what HP has got. After releasing numbers for the company's second fiscal quarter ended April 30, 2002, Wayman noted simply: "In consulting, the economic slowdown has created excess capacity and underutilization of resources, and that has hurt margins."

Economic realities may eventually lead to some showdown inside HP. If things don't improve, the pressure to unleash the sales teams may wind up pitting Gilroy and Vertrees against their counterparts. How well they withstand such pressure remains to be seen. At least from Vertrees' perspective, Hard Deck will live on as a "philosophy of providing predictability and minimizing friction."

While long-term questions about partners' roles remain, HP will absolutely rely on them. In the near-term, it will lean on them to penetrate key vertical markets and pick horizontal markets, including the SMB space.

In recent remarks, HP president Michael Capellas insisted the company will actively engage partners at all levels. But no specific plans have been brought forth that lay out in detail how HP will make the most of its channel. The company's PR machine has tried to showcase what partners are doing, but these efforts seem to offer more in the way of placation than in the way of new promises. Take the recent press release that highlighted solution providers including BCG, Dimension Data and Sysix Technologies, and distributors including Pioneer-Standard and Avnet Computer Marketing, for example. The release noted that they are among a group of HP partners that has been winning customers and seeing strong sales. According to HP, Dimension Data's North American operations saw its HP and Compaq business increase threefold in the nine months after the merger was first announced. Meanwhile, Chicago-based Sysix Technologies saw first-quarter revenue up 37 percent from 2001, thanks, in part, to more than $4.2 million in new HP product sales.

Partner Details Scarce

Success aside, the release offers little new to other partners hungry for news of new programs and policies. Although Gilroy says the company will provide predictability, keep the lines of communication open and make ongoing investments in the channel, precise details have not been provided. But they will, he vows. Vertrees adds that HP will make key channel investments in the areas of high-performance servers, storage, soft-

ware and solutions.

As for Fiorina, she says the question of whether HP increases or decreases its direct sales misses the point. Her concern is the type and nature of work partners do with HP. So long as they add value, there will always be significant opportunity for them to work with HP, she suggested at the company's recent press conference.

But exactly how HP will recruit, train, support and motivate partners going forward remains uncertain. And that's making many partners wonder what to expect. Notes Jean Bozman, research director of global enterprise solutions at IDC: "For VARs that represent both companies,those in the overlap,there's great upside. It's the loyalists of one camp that I wonder about. Going forward, they obviously have some big decisions to make." n