Distributors Hoping HP Will Re-examine Direct Strategy

"We think two-tier distribution is the most profitable route to market. Hopefully whoever steps into the role [permanently] will take a breath and reconsider strategies. We're all in this to make money and provide more value," said Keith Bradley, president of Ingram Micro North America.

HP's CFO Rob Wayman, today named interim CEO, should look at the profitability of its channel business vs. its direct revenue, Bradley said

"The advantage of having the CFO in the interim role is his perspective of all the numbers. I'm hoping that Rob's got that holistic perspective. The financials talk for themselves. It seems strange to me that other large vendors draw opposite conclusions [than HP about the direct model]," Bradley said.

The post-Carly HP also should focus more on execution than in changing its current strategy, said John Paget, president and North America COO at Synnex, Fremont, Calif.

"It sounds like their strategy is fairly well laid out now and I think they will be more about implementation. I think the entire channel would applaud if HP becomes more operationally intensive and becomes a stronger driver in the marketplace," Paget said.

HP's recent personnel announcements, including naming Vyomesh Joshi as head of the Imaging and Personal Systems Group and Duane Zitzner's retirement, are evidence that HP intends to become more operationally focused, Paget said.

HP is the largest vendor for several distributors, but the balance of business through them should not shift significantly in the future, said Brian Alexander, vice president of equity research, technology distribution, at Raymond James and Associates.

"A lot of HP's execution woes were not a function of its channel relationships, but more a function of internal misdirection, key employee losses and systems conversion issues," Alexander said.

The reign of Fiorina, who was named CEO in 1999, may be best remembered by channel executives for increasing the company's direct sales efforts against competitor Dell as much as for spearheading HP's merger with Compaq. HP's direct initiative has stabilized over the last couple of years and HP had become less competitive, said Steve Raymund, chairman and CEO of Tech Data, Clearwater, Fla.

"Clearly in the early days her relationship with the channel was quite rocky because of her strongly held belief that direct was best in any and all circumstances," Raymund said. "But Carly's views modified to take into account the significant value that channel partners offer HP. The policy toward the channel improved, particularly in this past year, with changes that put business back into the channel."

Raymund thinks that HP's improved channel relationships should continue even with Fiorina's departure because of the strong management team remaining at the company.

Joshi now runs HP's Imaging and Personal Systems Group that accounts for the vast majority of Tech Data's business with HP, and he is "universally held in the highest regards" by many in the channel, noted Raymond. "Now that he doesn't have a boss, maybe that will give him a freer hand to do what needs to be done," he said.

Joe Burke, vice president and general manager midrange business for Arrow Electronics North American Computer products Group, said that the new HP CEO would be wise to appoint a COO to address execution issues to ensure that strategies are being carried out and people are accountable.

"It would be smart by any new CEO to have a COO," he said.

HP has not had a COO since Michael Capellas left to become MCI's chairman, president and CEO in November 2002.