Channel Renaissance At HP?

Now, many fear that instead of a heads-down business agenda, a pall of uncertainty will cloud both the conference and the market.

"It is disheartening to have more turmoil," said Don Richie, CEO of Sequel Data Systems, an Austin, Texas-based HP enterprise partner.

One sign that HP may be increasing its reliance on the channel, however, came with news of direct-sales account representative layoffs just before Fiorina was ousted. One source close to HP said as many as 2,000 employees were being let go.

HP would not comment on layoff reports. But the vendor has said in a Securities and Exchange Commission filing that it is budgeting about $200 million in expenses for workforce reductions for the first half of its fiscal 2005, which began Nov. 1. Interim CEO Robert Wayman said he will address the layoff issue in a first-quarter earnings call Wednesday.

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Never have the stakes been higher for HP. As the vendor's mantra shifts toward profitable growth, the question becomes can the channel, which accounts for upward of 60 percent of the company's revenue, help set HP on the right path?

Wayman told CRN there would be no change in HP's direct vs. channel sales strategy and that he foresees no shift in HP's plans to turn over 250 direct enterprise accounts to the channel.

John Thompson, HP's vice president and general manager of the Solution Partners Organization Americas, also vowed that HP's channel strategy won't waver. He notes that many of the new initiatives to be rolled out at the conference are targeted at smaller VARs specializing in SMB. And he said HP, Palo Alto, Calif., will unveil an IBM competitive displacement rebate of up to 4 percent for replacing IBM desktops, notebooks and workstations with HP systems in the wake of IBM's sale of its PC business to Lenovo.

"We have specifically reached out to the smaller VARs and partners to support their attendance [at the Americas Partner Conference] this year," said Thompson. "We are looking to help and support the small-business partners. We will be working with the partners on a selected basis for net new business for HP. IBM VARs are contacting us because they are concerned about their future."

Another incentive is an increased discount for PC demo equipment—to 40 percent from 30 percent—beginning March 1 and running through Oct. 31.

On the services front, HP will for the first time allow authorized service partners to sell and deliver HP Care Pack services for printers beginning April 1. The vendor also will allow Authorized Warranty Delivery Partners to not only sell but to deliver post-warranty HP Care Pack Services.

Yet another incentive, rolled out on Feb. 1, is an additional 4 percent discount for ProLiant blade server sales. Partners must register the deal and demonstrate a value-add to get the discount. The company also enhanced its Portfolio Tool offerings, which give solution providers rebates for bundling a variety of HP products into a solution. As of Feb. 1, Alpha servers, education services and business- continuity services have been added to the tool with a 3 percent rebate.

Thompson vowed that the conference would be much more than a social event. "We are going to put together collaborative growth plans with partners in one-on-one sessions, and we expect to do deals that will generate a significant amount of new revenue opportunities for partners," he said.

Solution providers, for their part, say they are hoping for a real channel renaissance at HP. Many welcomed the merger of HP's Imaging and Printing Group with its Personal Systems Group last month. Vyomesh Joshi, former Imaging and Printing Group executive vice president, leads the new Imaging and Personal Systems Group. Solution providers point out that Joshi headed a business that derived 95 percent of its revenue from the channel and now inherits one that is only 50 percent channel-driven.

Joshi said Fiorina's departure would not alter his approach to the channel. "This news does not in any way affect the priority and importance we place on our sales and channel initiatives. Our objective is to continue to build momentum with our partners," he said.

"We are a $50 billion business at [the Imaging and Printing Group] with $4 billion in profit," Joshi added. "Even without servers and services, we are bigger than Dell. My view is that I need to grow top line and bottom line every year, and I can't do that without partners. I need to look at our [Personal Systems Group] and [Imaging and Printing Group] portfolios and say, 'What kind of services and solution approach can I take with the assets I now have together to drive growth strategies with which we will increase our revenues and profits with partners?' That's what you can count on."

But Joshi has his work cut out for him in rallying small VARs that focus on the Imaging and Personal Systems Group's bread-and-butter SMB market. Solution providers say that HP's Solution Partners Organization, under Thompson's direction, recently has put much of its channel efforts on the enterprise side of the house at the expense of small VARs.

"[The Solution Partners Organization] is not focused anywhere on SMB; it just seems to be enterprise-type things," said Pete Busam, COO of Decisive Business Systems, an SMB solution provider in Pennsauken, N.J. "I'd like to see [Thompson] reach out to smaller players and ask us, 'What can we do at [the Solution Partners Organization] to help you drive business?' "

Still, HP solution providers large and small worry about competition from HP Direct and welcome the vow to go after profitable growth in the PC business.

"It would be good for CDW to the extent that we are competing with their direct operations," John Edwardson, CEO of Vernon Hills, Ill.-based CDW, said during the company's earnings call with analysts last month in response to HP's apparent renewed focus on profitability vs. market-share growth. "If they are focusing on profitability vs. growth, that would be good for us."

Added Rich Tear, CEO of CSCI, an HP SMB solution provider in San Diego: "It's clearly a stacked deck for the direct side. From a pricing standpoint, HP feels that the direct model is more compelling in the SMB market." As a result, Tear said he is shifting more of his business to HP's agent program—in which HP sells directly to the end user and the solution provider is paid a commission on the sale—instead of competing directly on price with the vendor.

Joshi, however, says pricing is not the primary issue in the SMB market. "Pricing is not the only lever," he said. "There is a lot of value, especially for clear vertically focused VARs, to serve our customers in a different way."

HP's enterprise solution providers, however, say the company's renewed focus on profitable growth translates to more attention being placed on VARs that sell high-end HP products. Foremost on their minds is the turnover of the 250 direct enterprise accounts. Thompson said HP has identified those accounts it will transition to a partner-led sales model and will begin informing solution providers at the Americas Partner Conference of which accounts they will receive.

Timothy Joyce, president and CEO of Roundstone, an HP enterprise VAR in Alameda, Calif., said some of the accounts were in fact direct accounts in name only and VARs were already doing the bulk of the HP business with those customers. "But if there is an acknowledgement that channel partners can handle it better than HP's direct model, then it's a good thing to [officially] move it to the channel and let someone be more proactive in marketing to those folks," he said.

Still, one solution provider, who asked not to be identified, said that last week HP told the company it would be assigned to new enterprise accounts where it previously wasn't engaged. "This represents significant net new business for us," the solution provider said. Other solution providers caution that any backsliding into direct sales will subvert HP's channel message. "We recently lost a SAN installation to HP Direct after we put in 120 consulting hours," said John DeRocker, senior vice president of sales at Nexus Information Systems, a solution provider in Plymouth, Minn. "We had already sold one SAN to the account and were about to sell a second when the customer asked for an HP Direct price and decided to go direct because the pricing was cheaper. I keep seeing that HP is trying to re-engage the channel, but I am seeing the exact opposite."