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The memo represents what may well be the most detailed financial and business analysis yet on the impact that a spinoff of HP's $42 billion PSG business could have on the Palo Alto, Calif.-based company’s remaining businesses.
It's also the most direct salvo against HP yet from Cisco.
Cisco sees significant competitive advantages as a result of a radical shift away from the HP strategy pursued by former HP CEO and current Oracle Co-President Mark Hurd. "Under Mark Hurd, HP's success was driven by efficiencies of scale: lower expenses through supply chain efficiencies and increased volumes via cross-selling and broad market coverage," the memo states. "Without the PC business, there is very limited supply chain or go-to-market commonality between the remaining parts of HP (printers versus servers/DC networking/software/services), which breaks this virtuous cycle and will require a new, still undefined strategic approach."
"By removing PCs, HP has effectively become a conglomerate of unlinked businesses -- a direct reversal of the integrated strategy established under Mark Hurd," Cisco said in the memo.
As for new HP CEO Meg Whitman, the document states, "as of today [HP's new CEO] has reaffirmed her support for this abrupt change in strategic direction, acknowledging that she thinks the 'strategy is right.' She stated that she is 'excited' to close the [$10.3 billion] Autonomy acquisition and intends to continue the strategic review of the PC business."
The memo also details the negative impact that a PC spinoff could have on HP's channel partners. Cisco estimates that HP's PC business generates between "$600,000 - $1 billion in channel funding including channel promotions, market development and distributor co-operative funds."
"This channel funding has created relevance with sales and technical personnel and has been leveraged by HP, as well as the channel itself, to cross-sell networking, software and other more profitable HP products," the memo states. "Without PCs leading the sale, we expect HP's average channel facetime to decrease by approximately 50 percent, average transaction size to decline by 35 percent and channel funding to decline, making it more difficult and expensive to reach and serve the channel partners through whom HP currently sells the majority of its technology to small enterprise and public sector customers."
Cisco's position echoes the opinion of some of HP's own channel partners, whom have explicitly urged Whitman to reconsider HP's PSG spinoff plan and the acquisition of Autonomy as she takes HP's reins. Whitman replaced CEO Leo Apotheker, fired by HP's board, earlier this month.
Andy Cadwell, vice president of sales for INX, a Dallas-based solution provider and Cisco Gold partner, said Cisco's aggressive sales tactics will provide critical air cover for Cisco partners, especially when it comes to competitive situations with customers evaluating both Cisco and HP networking solutions.
"HP went after Cisco hard when they were down earlier this year, and was very quick to exploit the challenges Cisco was having," Cadwell said. "We felt it. Customers were listening to it and taking advantage of some of the HP-Cisco back-and-forth to have a price discussion, so it's good to see Cisco going on the offensive."
If customers perceive a weak Cisco, Cadwell said, the conversation isn't about Cisco's business architecture, but about how much the baseline networking gear costs."Perception is reality. If they perceive Cisco as coming from a position of strength, they're more apt to be receptive to their value proposition," Cadwell said. "If they see Cisco coming from a position of weakness, they focus only on price."
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