HP Has Magic Touch; Vendors Get Creative
HP's performance is utterly remarkable when you consider just how harsh things are in the IT market. A few weeks ago, HP buoyed stocks and the overall channel with the news that its financials and growth were not being negatively impacted by the deteriorating economy. It is worth spending time reviewing what HP Chairman and CEO Mark Hurd is doing to see if you should be emulating his moves.
For its fiscal fourth quarter, HP's net income rose 4.2 percent to $2.03 billion driven by a 19 percent rise in sales. Hurd cited strength in HP's services business along with "disciplined expense management" as the reasons. By the way, that "discipline" includes parting ways with some 24,000 employees. The takeaways for the average solution provider? First, grow your services businesses. An early look at our annual State of the Market survey shows that, on average, services account for 57 percent of a typical VAR's annual sales. If you want to ignore what the market leader is not only practicing but preaching, then do so at your own risk. Second, if you or your top lieutenant are not watching expenses like a hawk, then your board needs to consider new management. Drill down into what your employees are spending and why. Get them to think like it's their money. Even inside our organization we are questioning every travel expense or finding ways to drive down operating costs. At a conference I just attended, two vendor executives stayed at a hotel within walking distance of the event because it was downright cheaper.
Hurd is also managing a highly diversified business model. While IBM walked away from the PC business, HP stuck it out with earnings rising just shy of 5 percent and shipments soaring 19 percent. Earnings from its printer unit jumped 11 percent; contributions from software jumped 34 percent to $195 million. Hurd is certainly trying to squeeze more out of his operation but is also priming the pump as he spent $360 million to purchase iSCSI SAN vendor LeftHand Networks. In addition, it cut a deal with CDW to fund more than 100 dedicated salespeople to drive HP-exclusive sales. HP's diversity can turn out to be its strongest asset or its weakest link depending on how aggressive its rivals become or if the downturn significantly worsens. Either way, Hurd is intent on gaining market share in the channel against its competitive set.
How aggressive will vendors get in the coming months? We are already seeing signs vendors are getting creative in efforts to stimulate year-end sales and build momentum. You can expect to hear more about this as vendors attempt to deliver their revised numbers for 2008 while laying the groundwork for next year. SAP launched a zero percent financing program in an effort to close sales and, at the same time, offered 100 percent reimbursement on MDFs. SAP is also asking partners to send it the names of accounts on the fence and said it will rally its sales team to help move deals forward. Meanwhile, Samsung is circulating a promotion on its LCDs and plasmas with aggressive pricing such as $499 for a 32-inch LCD and $699 for a 42-inch plasma.
Who's being aggressive with you? Everything Channel SVP and Editorial Director Robert C. DeMarzo is at [email protected].