Fiorina: HP 'Forced' To Use Channel

Fiorina made that comment during a conference called to explain the company's poor showing in its preliminary financial report for its fiscal third quarter.

While overall revenue of $18.9 billion for the quarter met consensus expectations, earnings were below what analysts had forecast.

The culprit? Fiorina put the blame squarely on the company's Enterprise Storage and Servers (ESS) business, which saw its revenue drop 5 percent compared to the same quarter last year to $3.4 billion.

The fall was related partly to a poorly-executed move to SAP, which Fiorina said caused a six-week disruption instead of the expected three-week disruption, as well as to fall storage prices and problems in Europe.

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Fiorina said it was the SAP migration that caused the most headaches and that moved HP to rely more on the channel than it has, especially for sales of the company's industry-standard servers, but also for business-critical servers and storage.

"While actions were taken to ensure product availability and customer satisfaction during the transition, the migration was more disruptive than anticipated," she said. "Not only did we miss certain transactional sales, we were forced to take additional steps to ensure delivery, including fulfilling certain direct orders via the channel and expediting orders via air shipment."

Bob Wayman, executive vice president and CFO at HP, said that reliance on the channel had an impact on channel inventory, but that things were getting back to normal.

At the end of the quarter, EES inventory in the channel was lower than normal, by about a week's worth. "Overall, I believe channel inventory is well-managed," he added.

In its ESS business, storage revenue for the quarter was $709 million, down 40 percent compared to last year, Fiorina said. This included a year-to-year revenue drop of 23 percent for the company's EVA and XP product lines, and a drop of 16 percent in its tape and other near-line business.

Fiorina blamed the SAP migration and storage pricing for 80 percent of the revenue shortfall, with each playing an equal role, and European pricing issues for the remaining 20 percent.

Fiorina said HP's storage business was not as competitively positioned before this past May's new product launch, and that its competitiveness will be enhanced with a new launch next month. CRN reported this week that HP will launch new enterprise-class storage arrays based on Lightning arrays from Hitachi Data Systems, with which HP has a long-term OEM arrangement.

"Nevertheless, I think our competitive position is not where we would like it to be at this point, and we've got work to do there," she said.

In servers, Unix-based server revenue was up 8 percent, but AlphaServer business was down 32 percent and non-stop server business was down 25 percent. Fiorina said she was pleased with HP's Unix performance, but that the other server businesses were "spikey."

"In the case of Alpha, we expect it to continue to decline," she said. "And in the case of Non-stop, it's a nice business, but its 'spikey.' On a year-wide basis, it's not particularly a growth business here."