Is Cisco Putting Its Money Where Its Mouth Is On HP?


"It sounds like double-talk to me," said one channel source in the wake of San Jose, Calif.-based Cisco's recent decision not to renew HP's system integrator contract as of April 30. That source theorized that legal considerations may have tempered Cisco's aggression towards Palo Alto, Calif.-based HP in this latest round of warfare between the two companies.

Other industry watchers reckoned that Cisco and HP won't completely cut each other off any time soon because it would be bad for business.

As obvious as it is that Cisco and Palo Alto, Calif.-based HP don't see a bright future together as partners, VARs and analysts questioned just how fast the pair want to turn off the spigot to the possibly billions of dollars of business they currently do together.

Cisco would not comment on whether HP would continue to be able to resell Cisco gear and services going forward. But a second industry source close to both vendors said Cisco has left the door ajar on continued business between the two companies.

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"Cisco cut off HP's access to proprietary information and partner profitability incentives and back-end rebates," said the source. "But they didn't completely cut them off."

Other channel partners close to Cisco and HP said that HP can still resell Cisco products and services, as any registered Cisco partner would. Taking away HP's "certified" partnership means HP is no longer privy to benefits like advanced looks at product roadmaps, but the repercussions of that will take longer to play out than if Cisco had made the more draconian move of completely deauthorizing HP as a reseller partner.

By way of comparison, a complete divorce would probably look a lot more like HP's early 2007 decision to fully de-authorize Texas-based reseller partner Micro System Engineering, then a $200-million company.

If Cisco seems hesitant to take the drastic step of severing all ties with its rival, the same is likely true of HP, said Rob Enderle, principal analyst for the Enderle Group. He pointed to HP Services, the $35 billion outfit that since the acquisition of EDS had become the second-biggest business unit at HP in terms of revenue, behind only the Personal Systems Group.

"EDS, much like IBM Global Services, has to work with what customers buy -- and customers buy Cisco. If EDS pushes too hard and the customer feels they either can't trust them or that EDS no longer understands Cisco products, then they are likely to switch services vendors," Enderle said.

The analyst sketched a picture where HP's EDS accounts "drift towards HP [hardware] solutions" over time, but Enderle said that couldn't happen overnight if HP wanted to compete with IBM, Accenture and others as a business process consultant and IT outsourcer to top enterprise customers.

"For EDS to work they have to seem more loyal to the customer's needs than to HP's product lines. If they can't do that, then other services organizations, including IBM's, will likely take those customers over time," he said.

Enderle said HP's products will certainly have an advantage through EDS, but that it would be wiser to "entice" accounts towards HP solutions rather than force them, "because forcing it will likely force the service organization that does it out of the shop."

Steven Burke and Andrew R. Hickey contributed to this article.