HP Faces Customer Retention Challenge

The findings are based on responses from 569 HP enterprise customers surveyed last month by Encompass, a user group consisting primarily of former Compaq and Digital Equipment Corp. customers. Specifically, 51 percent say HP's role will remain the same, while 25 percent report it will increase. On the downside, 17 percent say it will decrease while seven percent say HP will have no role.

That latter finding is cause for concern, says Michael Cox, president and CEO of Logical, a Schiller Park, Ill.-based solution provider that sells enterprise HP servers, storage and printers. "That alarms me," said Cox, noting HP accounts for 75 percent of his revenue. "HP's in business to grow market share and the best place to grow is with the installed base. If 24 percent said they are either are going to buy less or drop HP altogether, that doesn't bode well for growth opportunity in the installed base."

But Don McDowell, vice president of server solutions at Forsythe Solutions Group, Skokie, Ill., doesn't seem as concerned. Despite the trouble with 24 percent of the customer base, the 25 percent increasing their spending essentially means business will be flat, McDowell says. "It reinforces the market conditions that say enterprise hardware spending will see minimal growth for the next year," he said.

Encompass fielded the survey to determine the post-merger impact of HP's $19 billion acquisition of Compaq last year. The findings were released at last week's HP World show in Atlanta, where customers were generally upbeat about their relationship with HP and the company's solution provider partners.

"Most of these people are either maintaining or increasing HP's role in their organization," says Jim Becker, an IT manager with The Urban Institute, and who serves as Encompass' treasurer and key spokesman. "It wasn't a number they were pleased with," Becker says, adding they weren't overly alarmed either. "They want to know why," he says. While HP officials briefed on the survey the company declined to comment.

That a majority are looking at sticking with HP is good news and consistent with IDC's own research, says analyst Jean Bozman. "It's interesting, given all the difficult conditions that businesses are under, that more than half are saying they don't expect their relationship to change greatly," Bozman says.

Most HP customers interviewed by VARBusiness plan to do the same or more business with the company and its solution providers.United Rentals, a Shelton, Conn. supplier of industrial equipment, plans to do slightly more business with HP than it has in the past, according to Douglas McCann, the company's Unix system support manager. Currently, HP accounts for about 40 percent of the computing resources at United, the rest are iSeries and Intel-architecture systems.

"I would say HP is here to stay for quite a while," McCann says. "Whether or not the OS remains to same [HP/UX], remains to be seen. We might move from Unix to Linux but I think HP will be in the picture." Among HP's strongest attributes, he says, is the company's support, one of the key reasons respondents to the Encompass survey say they are sticking with HP. Nearly half, or 48 percent of the respondents also said they were satisfied with HP's adherence to its roadmap strategy, while 44 percent were unsure and 8 percent were dissatisfied.

United's McCann was among those who says he is pleasantly surprised at how well the merger went. "A year ago, I was questioning whether or not they should have bought Compaq and that turned out to be the right choice. Everyone was saying this was the biggest mistake HP could have made. They proved everybody wrong."

Some customers are heavily increasing their mix of HP infrastructure, such as Morris Communications, a media conglomerate that publishes newspapers and magazines. Last year, HP accounted for 20 percent of the company's infrastructure, says CIO Steve Stout. Now HP's share inside Morris is headed toward 40 percent, with Dell making up the other key provider. HP's increased share is coming at IBM's expense, Stout says. "They just didn't seem as hungry for my business as HP," he says.

Morris is replacing its IBM Unix servers with a mixture of HP/Compaq Proliant servers and Dell servers to be managed by HP OpenView. A new storage infrastructure based on HP's Storageworks XP 128 platform will replace a configuration of JBOD servers, Stout said. Morris is using HP Services to host 7 terabytes of data between two facilities in Atlanta that are 15 miles apart and connected by an OC-96 Sonet ring. HP and BearingPoint, are partnering to deploy the OpenView solution.

The merger with Compaq actually helped HP increase its share inside Morris. While Stout says the company was an HP customer, it had little or no Compaq gear. But as a result of his relationship with HP, he decided to give the Proliant line a try. "I probably would have just stayed with Dell," he says.

HP is now the leading vendor in terms of revenue in the server market, accounting for 30 percent of sales in the first quarter of this year, according to IDC. Still, market share is cyclical, IDC's Bozman notes. "Market share goes up and down but it doesn't change overnight," she says.

For its part, IBM is snagging its share of deals from HP as well. Aptly timed for HP World last week, IBM said it had several such wins, including Lego, furniture retailer W.S. Badcock and Web-hosting company Interland, among others. John Lally, Interland's director of product management, says the decision to switch out some HP servers to IBM was less of an indictment of HP than it was that IBM put forward a better deal. "HP was certainly very close but in the end it came down to economics," Lally says.

Then there are some who have sworn off HP altogether, such as Gainesville College in Gainesville, Ga. The company purchased about 30 low-end ink-jet printers, many of which didn't work properly back in February, and after six months of trying to get HP to replace them, it has started purchasing Epson printers. "I used to swear by HP products but lately their tech support is way south and their products have gone way south," says Brandon Haag, assistant director of information technology. Haag says he's still trying to get HP to make good on the problem units.