HP's 'Secret Sauce' Remains Its Strong Partner Channel

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Hewlett-Packard's sobering second-quarter earnings are more evidence of the recession's continued impact on the technology sector, but HP can continue to count on a fiercely loyal partner channel as it forges ahead in a tough economic climate.

The Palo Alto, Calif.-based computing giant suffered a 3 percent overall decline in revenue in its just-concluded second quarter as compared to the same period in 2008. The earnings picture was bleaker, with HP on Tuesday reporting a 17 percent decline in net income as compared to last year's second quarter. The pain was felt in all of HP's major business segments with the exception of HP Services, which showed 99 percent year-over-year revenue growth and surpassed HP's lucrative printing and imaging business in profits -- thanks largely to the company's acquisition of IT services giant Electronic Data Systems (EDS) last August.

It marked the second straight quarter that HP's earnings in all segments but services took a significant hit, following several years of solid, dependable growth under the leadership of Mark Hurd, who was named CEO on March 29, 2005. What's more, HP didn't offer much comfort to a market desperate for signs of recovery, giving extremely cautious guidance Tuesday for its third quarter and beyond.

But even as the bellwether tech giant continues to brace for declining demand for its PC, server, printing and software products -- to be frank, an outlook that some of its more Pollyannaish peers might be wise to adopt -- the one ace card in HP's back pocket remains a reseller channel that is by its side for the long haul.

"When we all come out of this thing, whether that's 12 months or 18 months down the road, we're going to be in a position to gain share, and HP's going to gain share," said John Convery, executive vice president of vendor relations and marketing at Denali Advanced Integration, an HP Elite Partner in Redmond, Wash.

Convery, like many HP partners, is up-front about the economic downturn's impact on his company's business, particularly Denali's run rate with enterprise customers. He was pleased to hear Hurd speak just as candidly during Tuesday's second-quarter earnings teleconference, during which the HP chief all but dismissed the return of enterprise-level IT spending until next year at the earliest.

The flip side to the slowdown in enterprise spending, Convery said, is that Denali has been able to remain profitable and is even hiring as it refocuses on other market segments with the help of HP.

"With the enterprise customers, we're basically fighting for a bigger portion of reduced spend. But what we've been able to do, with HP anticipating this as well, is to focus on the midmarket and the public sector," he said, dubbing HP's ability to scale its offerings down to fit smaller customers' needs the company's "secret sauce."


Next: The Mark Hurd Fan Club

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