HP's Hurd Chides Partners Using Gray-Market Parts

The Palo Alto, Calif.-based IT giant aims to discourage such behavior by offering higher incentives to partners that take full-fledged HP products to market, Hurd said Tuesday in a QandA session at HP's securities analyst meeting in New York.

“The thesis is that all partners aren't necessarily equal,” he said, explaining that some partners are taking parts out of HP systems to use as service parts and are replacing them with gray-market parts.

The parts replacement could expose customers to less-reliable HP products, Hurd noted. “That is not helpful,” he said, adding that HP holds accountability for HP-branded products.

HP wants to pay higher incentives to partners that are “investing their hard-earned money” to bring bona fide HP products to market. “We want to incent more of that behavior,” Hurd said, noting that not “everybody has loved it.”

Commenting on other channel-related issues, Hurd frowned on what he called the often binary industry distinction between direct and indirect sales.

“I get questions all the time on whether we&'re direct or indirect [sales]. Let me try to address that today,” he said. “I don't even know exactly what that means. We have some partners who are simply great, and we want to leverage those partners--partners that give us extended reach, partners that bring products to markets that we don't have, partners that have industry specializations that we don't have, partners that bring capabilities that we don't have and partners that add value in the marketplace. ... Not to be negative, but we have some partners that don't always do exactly what we like. We'd like to have more of the former than the latter.”

At the same time, Hurd reiterated his support for the channel and stressed that HP is focused on building the “best sales force in the industry.” He said HP is driving accountability and responsibility down to its sales trenches and removing the matrix-like organization that has hampered sales staff. “We have to take every piece of complexity off these [sales] people's backs and allow them to optimize their selling time,” he said.

To that end, HP is making changes so its salespeople can spend more time in front of customers, according to Hurd. The time spent preparing for a sales meeting or dealing directly with customers is measurable, and HP aims to improve that metric, he said.

What's more, HP is working to help its sales team get price quotes and configurations to customers “as fast as anybody on the planet and be responsive to the customer as fast as anybody on the planet,” Hurd said, explaining that HP aims to simplify its go-to-market model for its internal sales team and for partners. “We have added complexity. I believe we can simplify it,” he said.

“We need to send clear messages both to the sales force and partners about what we want to get done,” Hurd added. “You will see improvement. To be very blunt with you, this has not been our core competency. When you look at the evolution of our go-to-market models, we have opportunities to improve, and that is what we are going to do.”

HP projects fiscal 2007 sales growth of 4 percent to 6 percent. CFO Bob Wayman said that would translate into earnings per share of $2.12, slightly above analysts&' current consensus estimate of $2.09. Shares of HP were trading at $29.19 Tuesday morning, down 78 cents, or nearly 3 percent.