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Hurd: Realigning Partner Pay Represents Big Opportunity To Improve HP

Hewlett-Packard CEO Mark Hurd Wednesday told Wall Street analysts that the company's drive to realign partner pay with performance represents a "big piece of our opportunity to improve the company."

Although Hurd refused to detail new channel metrics around partner compensation, he said HP is focusing on how to properly deploy discounts, market development funds and promotion dollars to incent channel partners to sell a complete HP solution. "The bulk of it is how we deploy it, how we align it so that we incent the appropriate behavior out in the marketplace," he said.

Hurd made the comments after HP posted better-than-expected results for its first fiscal quarter ended Jan. 31. HP posted non-GAAP operating profit of $1.7 billion, or 48 cents per share, on a 6 percent increase in sales to $22.7 billion. The Wall Street consensus was earnings of 44 cents per share on sales of $22.5 billion, according to a survey of analysts by Thomson First Call. "We have set objectives and have been generally good at doing what we say," Hurd said in a question and answer session with reporters. "That is the cornerstone of any organization that is execution-oriented."

Hurd said HP is focused heavily on maximizing attach rates and sales of additional options or services. "The mix both across the company as well as within product lines and attach [rates] are really big deals for us," he said. "We are putting a lot of energies in areas where we see significant margin opportunity."

Hurd also reiterated his concerns about partners leading with the HP brand, ripping out HP parts and replacing them with non-HP components or products. "We actually have partners that take our brand, which is one of the 12 or 13 leading brands in the world, lead with our brand and hollow out our product and put in other products and components," he said. "That is not nearly as interesting to us as somebody that really puts a full Hewlett-Packard solution together provided that fits for the customer."

Hurd also reaffirmed his commitment to a hybrid channel model against rival Dell. "We are going to put more energy behind these core partners and we hope in the end that provides opportunity for them as well as us," he said.

The channel represents a "key advantage" for HP, he added. "The fact that we can leverage the hybrid model gives us reach and position," he said. "They get us to a series of buyers that we just can't get to directly. The reach and extension they have in some of these emerging markets and channels we just can't replicate with our direct resources."

Hurd said that he remains optimistic about the as much as $91 billion sales target HP set for the current fiscal year. He said the company's quarterly sales growth would have been 8 percent without the negative impact of currency translation. Furthermore, he said he sees a "steady economy out there" and a steady macro demand for IT products.

HP's Personal Systems Group (PSG) unit showed marked improvement, reporting an operating profit of $293 million, or 3.9 percent of sales, up from a profit of $147 million, or 2.1 percent of revenue, in the prior-year period. The margin improvement in the PSG unit represented the best numbers the unit has posted in many years, said Hurd. HP said PSG sales were up 8 percent year-over-year to $7.4 billion, with unit shipments up 16 percent. On a year-over-year basis, notebook sales were up 26 percent, while desktop revenue increased 1 percent. Commercial PC revenue grew 6 percent year-over-year, while consumer PC revenue increased 18 percent.

HP's Enterprise Server and Storage (ESS) group reported an operating profit of $326 million, or 7.7 percent of revenue, up from a profit of $69 million, or 1.7 percent of revenue, in the prior-year period. ESS reported sales of $4.2 billion, up 5 percent over the year earlier period.

HP's Imaging and Printing Group (IPG) posted an operating profit of $973 million, or 14.9 percent of sales, up from a profit of $932 million, or 15.4 percent of sales in the year ago quarter. IPG posted sales of $6.5 billion, up 8 percent year-over-year.

HP Services (HPS) revenue declined 2 percent year-over-year to $3.8 billion as the company focused on adding "discipline" to the unit to assure that the deals it goes after are profitable and well-executed for the client, said Hurd. "We're putting a lot of pressure on the way we look at deals," he said.

Hurd stressed that the although he was pleased with the company's quarterly performance, there is still a lot of work to do to improve HP. "I don&'t want to put a cloud on this," he said. "But we still have a lot of work to do to get this place optimized."

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