Q&A: HP's Parrattino Talks Hardware Refresh, Pricing Pressure

Is the so-called hardware refresh of 2010 real or imaginary? According to HP, it’s very real -- and very lucrative for partners.

Last month at D&H Distributing’s Mid-Atlantic Technology Show, CRN Senior Editor Rob Wright sat down with Mike Parrottino, vice president of HP’s Personal Systems Group, Solutions Partner Organization, to discuss his company’s PC sales for the first half of 2010 as well as HP’s effort to increase channel resources and personnel in the field. The results for the Personal Systems Group have been impressive so far: For HP’s second quarter, ended April 30, unit shipments jumped 20 percent year-over-year while revenue increased 21 percent, led by surprisingly high growth in the desktop category with 25 percent revenue growth.

With third-quarter earnings just around the corner, can HP keep it up? Parrottino outlines why he thinks PSG’s business will continue to grow, despite intense pricing pressure and competition from the likes of Acer. He also discusses tablet PCs, cloud computing and the product category within PSG that’s really turning heads.

There was a lot of talk six months ago about the potential hardware/PC refresh in 2010. How has the Personal Systems Group fared this year so far?

The first and biggest thing is that we are and have been working on growing our product categories, not just within PSG but throughout Hewlett-Packard. We have a great opportunity with our channel partners with workstations, desktops and notebooks, and we’re getting aggressive with our specialty product categories like retail point-of-sale systems and digital signage. It’s really about bringing together the entire technology portfolio for the client solutions set. And I’ll tell you, I think we have the best product lineup we’ve ever had.

So the first part is about growth. The second part is about how you organize and structure yourself to achieve that growth and support the VAR community. And we have realigned a lot of our resources in the field to support the growth and our expectations for that growth. We also know that more headcount resources that are going to be required. So if you look at everything we’ve done from November to this point, we’ve actually increased our co-selling resources -- what I mean by ’co-selling’ is HP with a partner in front of a customer to sell HP solutions -- by 90 percent. So not only are we talking about how important the health care, education, and SMB markets are, but we’re putting the programs and resources behind that talk. And we’re getting phenomenal feedback from our partner community on that support.

So from your perspective, is the hardware refresh we were expecting the real deal? Do you feel like demand has returned and the economy is improving?

From a macroeconomic perspective, we are seeing improvements in the economy here in the U.S., specifically in areas like banking and financial services. So we’re definitely seeing more demand. I think the Windows 7 launch has generated a lot of interest, and we’ve hosted multiple road shows across the U.S. with Microsoft as well as Intel. So that’s had a significant impact. And we haven’t backed off our investment to our channel partners, and that’s been huge.

When you say a reallocation of resources, can you give a few examples? Are you talking about adding new staff or shifting headcount?

It’s a combination of both. We’ve added additional headcount as part of the growth plan. And we’ve taken some existing headcount and integrated them back into the field organization. So typically, when you think about reorganizations, you think about just moving people around. But that’s not the case here. It’s the opposite; we’ve added people to support those markets in the channel and we’re adding resources and technical competencies to support our reseller organization. And at the end of the day, we want to cover more of the total addressable market and get to more buying points in the market than we have in the past.

Next: Gains for PSG, Cloud Computing and More

Beyond the bread-and-butter PCs, how much have the other client devices within PSG contributed to the group’s performance now? Is there one particular standout among the group that has surprised you?

Well, if you look at what happened a year-and-a-half ago with the banking, finance and manufacturers markets, those areas took the biggest economic hits. You obviously saw a lot of consolidation with financial services companies. What we’re seeing now is growth with our workstations because we’ve gotten across that chasm and we’re seeing the U.S. [economy] improve. So the workstation business is growing extremely fast, and we’re definitely seeing a turnaround in those markets. The client virtualization business is also growing very quickly; clearly, the opportunity is the ability for our partners to take our server, storage and software business to the client and pull in our thin client devices, too. So there’s a lot of integration within our channel organization to make sure we’re working with, for example, Frank Rauch [vice president of HP’s Technology Solutions Group, Solutions Partner Organization] and his team in order for us to better engage the client and provide the full solution.

What’s your view of cloud computing in the SMB space?

My perspective is that where PSG plays within the cloud is access points. So whether you’re sitting there with a tablet or a Palm device or attached to a desktop, it’s about accessing the information. And we obviously want that experience to be with a Hewlett-Packard device. And so I would say the opportunity to access information through a variety of different devices, whether the client is big or small, is actually increasing. I just don’t see a scenario from a client device perspective where we won’t see a ton of growth. We truly have an untethered world where you don’t have to be hard line connected anymore. You have wireless carriers introducing 4G connectivity and faster speeds now. So whether it’s a laptop or netbook or smartphone, we want to be at the end of that line for data access.

What about pricing pressure around the client devices? Has it relented after last year, or is the falling price of hardware just the new reality?

We always have to be competitive from a price perspective. If you look at our Smart Buy strategy, we’ve gone from about 37 percent to 44 percent for Smart Buy versus non-Smart Buy. And we think that’s positive; we think partners are making money with our brand, and that’s why we’re seeing an increase with our Smart Buy effort. But let’s not kid ourselves -- this is a tough business to be in. And we’re in it for the long haul. We’ve got more partners interested in our brand than we’ve ever seen before. We’re competitive and we need to continue to stay competitive.

Acer Founder Stan Shih said earlier this year that U.S. computer makers will be extinct in 20 years, just like American TV manufacturers disappeared, because U.S. hardware companies don’t know how to bring low-priced products to market. Obviously Acer has its eyes on HP as the top PC maker in the world. What did you think of Shih’s comments?

I’m not going to make any comments relative to his comments. What I will say is this: we have a growth plan in place. We have a dedicated partner channel in place. We have been in the channel business for 30 years. We have high market share with our channel partners. And again, we need to remain competitive and make sure we’re offering value to our partners and customers, and we’ll continue to do that.

Next: Tablets, the Mobile Spectrum, and Channel Growth

Netbooks were hot sellers last year, and now this year tablets have taken off. What do you see happening to the form factor for mobile computing? Will devices continue to get smaller?

I think there’s going to be a need for size, capacity, performance and value across the entire mobile category. For someone like me who’s on a plane every week and who needs access to HP’s systems and uses Microsoft Office every day for hours at a time, a handheld mobile device just won’t allow me to do that. And frankly, I can’t even really do it on a netbook because my eyes are bad. But I need the power and the capacity to be able to log in remotely to HP. I think your job function dictates what category you’re in on the spectrum of mobility. Then there’s the vertical market question. If you’re in health care, then you’re probably not going to carry around a full-sized notebook and would be better off using a tablet or slate. So I don’t think devices will necessarily get smaller as time goes on until we’re all looking at 3-inch screens. I think there are people that need a 13-inch or 17-inch screen, and there are people -- depending on their job -- that can get along with a smaller handheld device.

You mentioned tablet PCs. What do you see happening around this market? For HP, will it be a more vertical market play or a consumer approach?

We look at that slate category as a very vertical category. So health care, education and those kinds of verticals are key for us.

Five years ago, HP was in a bit of turmoil with the company’s board, internal leaks, and the CEO, Carly Fiorina, being forced out and replaced by an unknown outsider in Mark Hurd. At the time, HP was lagging behind competitors like IBM and Dell. Now the tables have turned and HP is the biggest, most successful IT company in the world. From your perspective, what changed for HP over the last five years?

I think our continued strength and focus on the channel has been the biggest thing. We’ve been in the channel for 30 years. We invest hundreds of millions of dollars with our channel partners every year. And many of those programs are driven by the partners; they tell us what they need to be successful. And when you sit back and listen and understand what the partner community is asking for – everyone from large integrator partners and distributors all the way to your small-business resellers – you begin to absorb and prioritize what you need to do to grow the business in the channel, it becomes an extremely powerful thing. And I would say that we’ve listened and learned a lot and taken action on many things based on what partners have asked us to improve. And I think it’s a huge differentiator for us.