CRN Q&A: HP PC Boss Bradley On Future of PSG

Todd Bradley, the executive vice president of Hewlett-Packard's $40 billion Personal Systems Group (PSG), is leading the charge to spin out the PC business as a separate, publicly-held company that he would continue to run.

In the midst of a cross-country tour to talk about the benefits of a PC spin-off with partners and customers, Bradley spoke with CRN in an exclusive interview. Bradley discussed the the future of the HP PC business as well as the move by arch-rival Dell to recruit longtime HP partners. The interview came in the midst of Bradley's visit with one of HP's top PSG partners, Denali Advanced Integration of Redmond, Wash. Below are excerpts from the interview.

Talk about the Dell full-court offensive in the wake of the HP announcement. They have really come out of the gate hard and fast to grab partner and customer mind share and are really taking the HP message of end-to-end solutions and making it their own.

First, I think history speaks for itself related to many of our competitors. So what has changed in the last three weeks? Our commitment to the channel hasn't changed. Our commitment to our partners hasn't changed. Our commitment to growth hasn't changed. Our supply chain hasn't changed. I got up this morning and we are still shipping two PCs a second every day with a partner somewhere in the world, helping them understand where we are going and helping them win with their customers.

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I don't think a Stephen DiFranco [PSG Senior Vice President and General Manager] has a different perspective on how to grow with the channel than he did August 1. It speaks for itself.

Six years ago, you came to HP and made PSG a standalone business separate from Imaging & Printing. At that time, Dell was number one in PCs. You made HP number one in PCs. Talk about where you see the PC business going.

Don't forget we have also quietly become the number one workstation business in the world and now number one in the United States. So the amount of focus that Jim Zafarana [HP global vice president workstations] and his team have brought to that business, really around innovation and engineering that matters to customers, has helped us move from where we were six years ago to number one.

It is not like we woke up on the morning of this [PSG] announcement and changed what we were doing. We have talked about the uqbiquity of connected products. We have talked about the consumerization of IT and how we play a significant role in that. We have talked about the fact that products really are now around the creation and consumption of content. And people have become, I think, less stringent if you will.

The CIOs of the world now want to talk about not just standards, but management tools -- how do I manage this fleet of devices that is coming into my enterprise? How do I manage all of the different smartphones, notebooks, laptops? And that is where we are moving PSG and that is where I see us being very successful with our partners who can bring those significant pieces of the portfolio to customers.

And frankly, it's probably a better opportunity than some of our partners have ever had to work with PSG and sell the portfolio of products. Look, there will be change around some of the programs. But I know our focus will always be how we grow profitably with our partners.

NEXT: The Benefits of An HP PC Business Spin-Off

How does the strategy for client devices to data center change with a PSG spin-off? Will PSG establish relationships with other vendors besides HP?

Let me give you a very broad answer to that question. I think it is almost repetitive of what [HP Chairman] Ray Lane has said publicly. The reason to do this is to enable PSG to respond more quickly to the market that it competes in.

I'm going to leave that as the red meat in front of a bunch of dogs because that is the way we are going to view this.

Are you as optimistic about the PC business today as when you took the job?

Broadly yes. I think the world has clearly changed a lot over time. And when I joined HP six years ago, I think we were more defensive than offensive. My job is not to try to replicate somebody else's business model. HP wins when we are HP. PSG wins when we are PSG. And I can guess that there are a lot more people that try to mimmick what we do today than we mimmick what they do.

Talk about what kind of sales impact have you seen from the PSG spinoff announcement on the North American commercial sales channel.

I would characterize clearly [there is] uncertainty broadly based on the communication. As I got involved and my team got involved, we tried to drive as much clarity as we can around the situation.

I would say short term the sales pipeline looks good. For some of our competitors, this is frankly almost the only opportunity to crack the strength that we've built at HP. They are using it, and frankly we will battle that extraordinarily hard. Myself and the team at PSG, we got relatively late into the process so we are just now at the point of getting the right incentives in place, getting the right funding models in place, and the right advertising in place.

You saw some of our advertising run very, very broadly last week. You are going to see a lot of TV advertising around products -- 15 second [spots about] product and product attributes.

I think the core message hasn't changed. The fundamental difference is PSG over the past six years has built a phenomenal business with our partners, helped our partners build phenomenal businesses and we have built a phenomenal business inside of the largest IT company in the world.

We have built and when I say we -- the team within PSG and our partners, have built the largest PC company in the world and the largest, most profitable, biggest channel in the world.

What is going to happen soon as we complete this process is the largest PC company that is a division of the largest IT company will be a stand-alone, publicly-held largest PC company in the world, over $40 billion in revenue, over $2 billion in operating profit, operations in over 170 countries. The same people that built that huge division are going to now build an even bigger and better PC company standing on its own.

Can you guarantee that it is going to be a stand-alone company and it won't be sold to another company?

I can not use the word guarantee. I can use the words that this is our preferred option. I think that is as much as we can say right now. This will get very clear over the next several weeks leading up to the end of the year.

NEXT: Bradley's PC Spin-Off Message To The HP Board

What is your message to the board of directors as this decision is made?

Go! Go! Go! We have got to make an announcement. We have got to get this done. We have got to settle the uncertainty in the marketplace broadly for HP. Not just for PSG. The uncertainty is causing ripples across our business. And we have worked too hard to build what we have to open doors for other people to come in. I am very, very comfortable with the position that we have talked about. PSG will spin out as a Fortune 60 company if the spin-off is what we do. So that is a very, very powerful platform to build on.

And frankly the rationale that has been discussed-- and I think it is very, very valid-- is that this is such a portfolio of IT businesses now [within HP]. For PSG to compete with capital with everything from software to routers to printers, it makes enormous amounts of sense for this company to spin out, raise its own capital, invest in the PC priorities and the channel priorities around personal computing. I think the future is just extraordinarily bright for us.

How quickly can you spin this business off?

There are just too many third parties that have to be involved in an approval process to give you a good answer to that. Here is my answer: as fast as we can.

What is the best possible scenario in Todd Bradley's view for this PSG spin-off?

I think the broad preference is for a spin-off with the team of people that have built the most successful PC company in the world with the best partner community, the best partner support in the world, the broadest geographic coverage. It doesn't get much better than that.

What new investments are you making to help solution providers deal with this period of uncertainty?

We are moving this as quickly as we can. In our minds the best defense is a great offense, using the old football analogy. It has taken us a couple of weeks to get that offense together. You are seeing it in marketing. You are going to see it in communications to the channel community around just funding capabilities. We'll get you specifics as quick as we can.

One of the top things we have to do is an accelerated communications platform. That is probably the most important and where we are spending the most time. So we have got to get clarity around how we communicate to all of our partners continually so they have the tools they need to go win in the marketplace.

That is what has made us so successful: getting everybody the tools they need for HP to win in the marketplace.

We have got to go through this period where there is so much uncertainty as to what are the tools, what are the tools for you to go to your customer to say 'Look, this is why HP is going to continue to win, going to continue to meet your needs, going to continue to help you to be successful.'

NEXT: Bradley On How An HP PC Business Spin-Off Will Affect PartnerOne

Talk about the PartnerOne channel program incentives, especially with regard to converged infrastructure and selling the end-to-end solutions portfolio. What is going to happen to that PartnerOne program over the next 12 months to 18 months?

That is a very difficult thing to answer because we are so new into this. Obviously for a PC company to be successful, we need to participate in that entire solution and we will do that in the broadest way. Whatever PartnerOne becomes, it will be around helping our partners like Denali find the solution that their customers need, that clearly HP/PSG products are huge piece, a huge driver too.

Patience is not a word I use very frequently. But we just need a little bit of patience as we get these programs defined and get clarity around them moving forward. In the meantime, I hope everybody sees that they have as much if not more support to go win in the marketplace.

I am sure that there are lots of my competitors that are now the most channel friendly people that we have ever seen in spite of the 20-30 year history of probably not being that open to working with the channel. Look, we have got a long, long history of success, of winning together with Denali and 180,000 other partners around the world.

So it is part of our genetic makeup. And as PSG takes the next step in this natural evolution, our commitment, our focus, our joint success will be untouched.

What is your preferred PartnerOne program incentive with regard to a partner like Denali that has invested across the board to sell end-to-end solutions. Can you maintain those PartnerOne converged infrastructure incentives over the next 12 to 18 months?

I just don't know. I can't give you a guarantee.

Talk about how the PSG spin-off is going to affect HP's overall cost structure from a procurement and supply chain perspective. We have heard a lot over the last five years with you driving it forward that the $80 billion supply chain really is quite a competitive advantage engine for all of HP from IPG to ESSN. What impact will the spin-off have on that sales procurement and that supply chain?

We are working on that now broadly across HP. What I can tell you is post-spin, PSG as a standalone will still operate one of the largest supply chains in the world, will still produce and ship two PCs every second, will still be the largest customer of many of our big suppliers, Microsoft, Intel, Seagate.

So while I think we will work through the challenges and opportunities, I am comfortable with the fact that PSG will still have a huge supply chain and frankly I think some of the best supply chain people in the industry. Tony Prophet (senior vice president of HP's global supply chain operations) and his team will continue to be engaged and continue to drive what they have driven so successfully. I feel good about where we will be.

I think we have got a very good global footprint. None of the kind of strategic PC things that we have done have been affected by this. In fact, they have almost bolstered the rationale to do this. Clearly, as we move into a world of consumption and creation devices, all of which are connected, all of which are connecting into infrastructure, I think the opportunities for us and our partners are huge.

NEXT: Bradley On How An HP PC Spin-Off Will Enhance Shareholder Value

How does this PSG spin-off enhance the PSG value proposition for partners and customers?

In May, we talked about converting our commercial/consumer view to a value, a volume and a commercial segmentation. And the rationale for that was very much around the consumerization of IT that we all see and giving partners an even broader more vibrant portfolio of great commercial products.

But also premium products that will transcend into the enterprise. So that had taken place before any of this work on a separation [of PSG] started. We were already down the path of working strategically on what the marketplace is saying. If you think about the PC business historically, we kind of built it, we sold it, people bought it.

We are more focused on gaining customer insight than we have ever been, putting more resources in place to understand it, not just from a channel perspective, but also from a consumer perspective because we are at the beginning of the impact of the consumerization of IT on the enterprise, on any of our partners' customers.

I think we are once again leading the industry in a thought process that says, 'How are we going to lead the industry through this next transition?' We have moved from mobility to now a world of connectivity. We are moving from a world of commercial/consumer to a world of just ubiquitous computing.

And I think we have structured our product organizations now to be even more nimble and more focused on that than we have ever been. Clearly we have gotten to market through this time of uncertainty. Like we have always said -- and I think it has proven out to be extraordinarily accurate over the past six years -- we are most loyal to those partners that are most loyal to us.

Talk about PSG's partner commitment right now and what it is going to be post PC spin-off.

I think success speaks for itself. I think we have got great partnerships with great people that get our products to a broad, broad customer base. We operate very successfully the largest most profitable PC business in the world with the largest channel in the world. I can't think of any reason that we would do anything but get better over time.

Talk about the margins in the commercial solution provider North American channel separate from the consumer retail business.

There is no question that our commercial business has gotten much stronger. It will continue to get stronger. But I don’t think you can talk about that business without the other. In fact, we have tried to blend -- not from a go-to-market perspective but from a product perspective -- tried to make that less definitive if you will because we have seen people like Apple that are being very successful in the enterprise because of the consumerization of IT.

We know we have an opportunity to drive great design through multiple channels. The new 5000 Series notebook is as hot for consumers as it is for enterprise. Even at the enterprise level you have got to create some of that desire.

NEXT: Bradley On Whether HP Values Hardware

Right now within the partner community and among customers, there is a perception that HP doesn't value hardware whether it is PSG or whether it is printers or servers or workstations. What is your message to partners and customers?

HP really values creating solutions that meet customer needs. PSG values participating in that solution from a hardware perspective. We participate in it from a hardware perspective, from a partner perspective, from a go to market perspective.

As we go through this period of time, we will come out of it with a very successful hardware company with a very successful partner community and a very aggressive go-to-market capability, whatever the noise is in the marketplace.

Six years ago, all people wrote was, "Look how smart IBM is [selling off its PC business to Lenovo]." Look, IBM had to sell a money-losing business. What we are creating is more shareholder value. Our ability to hopefully spin off PSG as again the largest most profitable PC company in the world that supports the largest channel in the world is an opportunity to continue to grow, not an opportunity to retrench. It is an opportunity to focus more on what our people are great at. And that is what we are going to do.

What is going to be the advantage of a PSG spin-off, especially when you look at a business that is so dependent on supply chain?

I am surprised you are not focusing on the broad set of advantages. Clearly supply chain is an advantage. It drives time to market. It drives aggressive pricing. There is the advantage right there, a vibrant engaged channel that helps us go to market.

The combination of an aggressive supply chain, phenomenal coverage, a solution set that helps customers meet their needs: That is the advantage. It is not one thing. It is the ability to do many things that are the fabric of PSG and do them successfully.

Partners are anxious to hear from you with regard to your commitment and promise to them as they evaluate what they should do in the wake of the PSG spin-off announcement.

All of our partners should know from the past to never underestimate our willingness and ability to go to the market and win with them. Don't believe everything you are told by our competitors.

We have a long history of winning together and I think we have a great future to do that together coming up. Again the team that got all these partners to where they are is the team that is going to take them to the next step in hopefully a spun-out company.

Partners want to know: Is Todd Bradley going to leave this PSG spin-off? Is he going to be there for partners when this PSG spin-off is signed, sealed and delivered?

I will tell you that is my intent. It needs to be confirmed by the board.

NEXT: Bradley On Making Sure The HP PC Spin-Off Is A Stronger Business

What is your message to the board as you deal with a host of issues in terms of making sure the business is stronger and more vibrant as it is spun off?

Speed and clarity. That is the biggest message that we have talked about. Provide as much clarity publicly as we can, provide as much support publicly for all pieces of HP. I think that the board is very well aware of the success that we have had and frankly I think very confident of the success we will have.

A lot of this [talk] is about what has happened in the past. What I am focused on is what is going to happen in the future. We didn't become number one worrying about what has happened in the past.

We became number one by focusing on what our strengths were. How do we build this great partner set of relationships that we have? How do we build on a legacy of innovation that matters to customers? How do we focus together on profitable growth. What are the combination of sacrifices that we'll make to go win in the market for the long term? And there is nothing about that that has changed.

I know you can't guarantee how fast a PSG spinoff can happen. But can you characterize how fast you would like to see this happen? There is a perception that this could take a long time. And it sounds to me like you are saying don't underestimate how quick HP can do this.

Look, there are lots of third parties that have to be involved in the process and approval, and lots of things with regulators and securities laws. What I can tell you is we will do it as quickly as we can. And no matter what the timing is our support for growing our business is unscathed, is unflappable.

You know the PSG balance sheet better than anybody. Talk about how strong the company will be from a balance sheet perspective post PC spinoff.

I am going to give you the fundamental basics: Fortune 60 company over $40 billion in revenue, over $2 billion in operating profit. That is a very viable business that will grow very aggressively.

Talk about the Touchpad business. How viable is the Tablet business in your view? You see these Touchpads flying off the shelf at $99.

I think tablets will be a segment of the personal computer business. I think we will look at it from a solution perspective. I think at the same time soon, say end of this year or the beginning of next year, the ultra-thin notebook is going to get some real legs to it.

I think people are going to have very viable choices. Again when we go from the perspective of creation and consumption, an ultra-thin [notebook] with 17-18 millimeter Z height, super vibrant screen, and thin keyboard is a pretty compelling solution.

It is interesting when you look at tablets broadly; what do you think are the first two things that people buy when they buy a tablet? It is cover and keyboard.

NEXT: Bradley On HP's PC Business Product Road Map

Talk about HP's PSG product march. What are the new products we will see in the next few months that show the viability of the business?

You just saw two weeks ago one of the most significant all-in-one [desktop] road maps that anybody in the industry has done. Ultra-thin notebooks are very vibrant. I 'm going to New York tomorrow to do a workstation customer council. Our workstation guys I think are the best in the industry. When you look at the innovation that they have created: the ability for a partner to go take a workstation and sell up around that workstation, and the simplicity with which you can expand it.

We are actually introducing some of that same engineering expertise -- probably more than we have done historically -- into our PC engineering teams. So that same thought process around how we made workstations so expandable, so accessible, we now make that available in our PC business. There is a very cool all-in-one workstation coming out in the first quarter.

I'm as optimistic as I was six years ago with a bigger platform to build on. There are lots of people that are good predictors of the past. Our focus is how we build for the future with our partners.

It has been a pretty tumultuous couple of weeks in the wake of the HP PSG announcement. Any regrets?

I don't know if I would classify it as a regret. My only [concern] is that we can't get the communication out fast enough and crisp enough so people don't lose momentum and waste time.

What is your final message to partners?

Win with HP PSG. My message to partners is no different than it has ever been. You won with PSG for the last six years. You will win with PSG in the future. We will support the guys that support us, and we will do it as aggressively as we can do it.

As we have gone through these changes, a real focus now for me and DiFranco is to really get out and crank up hard with partners and their customers to help clarify this message as quickly as we can. I think the biggest benefit we have is when we can sit with our partners and customers and give them clarity around what we are doing.

The big thing is the team of people that built PSG into what it is today, that built the relationships, the success with our partners, are all committed to do this going forward.

How are PSG employees feeling?

You know the interesting thing is employees are excited. I have probably talked to 5,000 employees in the last two weeks. Employees are psyched. They just want to get through the uncertainty and win.