Capellas: HP To Reduce Price Protection, Along With Inventory

Hewlett-Packard

"Will you see changes in price-protection policies? Yes," said Capellas, during a daylong meeting with analysts. "Will we go to common T's and C's [terms and conditions across the channel partners? Yes. The way we'll do that and make it attractive to our partners is to drive rapid replenishment with faster inventory turns [using auto-replenishment." That model, he maintained, will improve the "economics of channel partners."

"The question about price protection is, if you drive the inventories down, you get very, very rapid [inventory turns when you get down to three or four days of cycle time," he said. That, he added, effectively pushes price protection "to no longer have much of a meaning, and that is exactly what we are going to do."

Capellas, however, stressed that the newly merged company must get to a standard set of terms and conditions across all HP-Compaq channel partners. HP has promised to give specific details on its new channel terms and conditions within about 60 days.

Capellas also stressed that the commercial PC industry inventories are "extremely low." On the consumer side, however, there has been a significant falloff in consumer PC sales, he said.

Capellas said the company is moving "very, very hard" to a "fast velocity channel model."

HP CFO Bob Wayman said the Personal Systems Business Group business will drop to 31 percent of the company's total revenue in the second half of the current fiscal year, compared with 35 percent in the first half.

Overall, HP expects sales of $35 billion to $36 billion in the second half of the current fiscal year, down 5 percent to 7 percent sequentially from the first half. The "vast majority" of that falloff is in the PC business, said Wayman. HP did not provide earnings per share estimates for the second half of the current fiscal year.