Internal Cisco Memo: HP PC Spinoff Will Result In Margin Loss, Weakened HP Brand


Cisco said in a hard-hitting internal memo that rival Hewlett-Packard's plans to spin off the HP PC business could result in "lower gross profits, price increases" and a weakened brand that will make it difficult for HP to compete in its remaining hardware businesses, including networking.

Cisco in the document maintains that HP's plans to spin off or sell its Personal Systems Group will result in lower margins for the HP channel, a sharp decrease in the size of HP channel deals and a drop in HP’s channel funding efforts.

"We believe that the negative supply chain implications could generate 2 - 5 percent margin loss, which HP would have to absorb in the form of lower gross profits, price increases passed on to customers or lower margins for channel partners," according to an eight-page internal document obtained by CRN.

The document, titled "HP's PC Business Divestiture - Cisco Internal Perspective," was written by Cisco's Strategic Marketing Team and sent to Cisco's global sales force on September 29 by Rob Lloyd, Cisco executive vice president, worldwide sales operations.

READ "HP’s PC Business Divestiture—Cisco Internal Perspective"

In a letter to the sales force that accompanied the document, Lloyd rallies his sales troops to pounce on "the confusion in the marketplace around HP" in the wake of a "radical shift in strategy toward software and services that impacts both its short term and long term businesses."

That strategy has left HP "struggling to provide a clear direction and strategy, leaving employees, customers, financial markets, industry influencers and their channel thoroughly confused," Lloyd said in the letter.

Cisco declined to comment on the internal memo, but a spokesman acknowledged that the Cisco sales team is increasing its competitive intensity toward HP.

"Consistency and predictability are the hallmarks of any successful channel strategy," said a Cisco spokesman in an e-mail to CRN. "At Cisco we’ve been driving a value-based channel strategy since 2001 and are committed to earning our partners’ loyalty each and every day. While many of our competitors’ partner strategies remain unclear, Cisco is doubling down on the channel by investing $75 million in our new partner-led sales model.”

HP declined to comment.

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