HP Gives VARs A Break As It Cuts EVA Storage Prices

The price cuts come a week after HP said poor sales of its storage products were dragging down its financials.

List prices for EVA arrays were quietly cut in the last few days by between 29 percent and 35 percent, depending on model, said Mark Gonzalez, Americas vice president for enterprise storage and server sales at HP, Palo Alto, Calif. The list price cuts are not a reaction to HP's storage struggles, Gonzalez said. The cuts have been planned for some time and are just one in a series of moves to bring down EVA prices.

Gonzalez cited as an example HP's decision to cut EVA hard-drive prices by 24 percent in June, and said the company is getting set to unveil an EVA starter kit bundle priced at about 25 percent under the sum of the list prices of the various components.

Rich Baldwin, president and CEO of Nth Generation Computing, a San Diego-based solution provider, said that while the timing of the price cut is suspicious, he has seen recent moves by HP prior to this latest round of cuts. "I know HP has been working on this for several months," Baldwin said. "Unfortunately, it's coming across as a knee-jerk reaction."

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The main reason for the price cuts, both Gonzalez and Baldwin said, is to attract customers who might otherwise be put off by high list prices.

Gonzalez said about two-thirds of HP's EVA arrays are sold into the Intel space, and that HP has about a 30 percent share of the Intel platform SAN market. "In the Intel platform space, servers are typically sold with a low-list-price, low-discount strategy," he said. "Partners have asked us to make our price strategy more consistent with our ProLiant servers, making storage easier to sell and giving them more at bats with customers."

Customers quite often go to a vendor's Web site to compare prices before placing orders, which can be hard for solution providers when list prices are high, Baldwin said. "Customers don't see street prices on the Web," he said. "A lower list price will get more customers, especially SMB customers, to consider EVAs."

While HP is cutting the list price of its EVA arrays, that may not result in lower end-user pricing since HP, like other vendors, heavily discounts its prices, according to channel sources.

However, the move could result in a cut to solution provider profits. HP's distributor and solution provider profits typically are a percentage of list price, regardless of final end-user pricing. With falling list prices, channel partners wind up with fewer dollars in their pockets, even if the final end-user price remains the same.

There are also channel concerns that a cut in list prices could also affect sales of support packages. Since the support price is not scheduled to change, it will appear to customers as a larger percentage of the list price.

To address such concerns, Gonzalez said in the next seven to 10 days HP plans to unveil a new channel promotion to increase storage margins. "So the net result is more sales opportunities while at the same time protecting [partner] margins," he said.

Gonzalez said he does not know how long the promotion will last. He did say there is typically an end date to such promotions, although that date is often extended for successful programs. For instance, he said a six-month program to credit solution providers that meet certain criteria for up to $100,000 in demo gear purchases is still available 18 months later.

Baldwin, while glad that HP is cutting list prices and looking for ways to compensate the channel for margin changes, nonetheless wishes HP had been more proactive in the way it handled the changes.

"Unfortunately, it creates confusion," he said. "The list price decrease has occurred, but it hasn't been announced. When you do business with customers, you might not discover the difference until the order. At the same time, enhanced margins are not ready yet. They should have been worked out by now."