Page 2 of 3
HP is targeting what they say are Cisco networking margins that total in some cases as high as 80 percent.
HP CEO Mark Hurd, for his part, gave channel partners a lesson in economics on those 80 percent networking margins. Using a simple paper-pad on an art easel, Hurd detailed the gross margins in PCs (11 percent), server (34 percent), storage (48 percent) and networking market (80 percent).
"Eighty points between price and cost," marveled Hurd. "Did he say 18 (percent). No- 80!" Those eighty percent Cisco margins, of course, are what HP is targeting with its no holds barred assault on the networking business fueled by its $2.7 billion acquisition of 3Com.
Hurd said HP's acquisition of 3Com is "changing the game in networking." He singled out the 3Com networking products as the "best technology on the planet" providing customers with "double the performance, 30 percent lower cost and half the power consumed by previous incumbents we had internal to our company. And instead of nine different software packages to manage our network we now deal with one."
What's more, Hurd said HP is using its $70 billion supply chain to assure that it can provide partners with competitive advantages against the competition.
That kind of leverage is a big advantage for HP, said Greg Spierkel, the CEO of $29 billion distribution giant Ingram Micro, one of HP's largest channel partners. That supply chain power is "important to a big company like us," said Spierkel. "We want to have someone that is going to bring us the lowest cost product to market, the broadest portfolio of innovative solutions."
Spierkel said he sees HP making "good gains" in the networking market. "Over the next three to five years, I would not be surprised that HP grows significantly in this space," he said.
That said, Spierkel said, Cisco is also working hard to "be very relevant as a total integrated solution beyond the network. Cisco has just started that voyage. HP has been more involved with ProCurve and on the (network) edge for a number of years. So I would say HP has an advantage in that regard for now. But both companies are excellent partners and both companies are bringing great solutions from a slightly different angle to their relationships. Customers will make decisions depending on how strong they are in one portfolio or another."
Spierkel said HP has "got more scale, no question about that. As a result they are bringing a lower cost approach to the market which plays well with our resellers and plays well with the end customer. That is the single largest advantage HP has."