Repairing the HP channel

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This article appeared in the Issue 186, 28 November 2005 issue of CRN magazine.

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Repairing the HP channel
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Following on from Campbell’s explanation for the ITS2000 fracas, criticism has been leveled more broadly at HP for not having enough account managers on the ground, leaving many dealers feeling that they’re being neglected.

But HP’s Dare dismissed any suggestion that HP’s planned redundancies globally had, or would have any impact on the Australian channel operations.

‘There are no plans for redundancies within the channel group,’ he says, adding that in his view HP’s ‘communications mechanism with our channel has remained in tact.’

But Leading Solutions director Frank Colli feels that there needs to be more HP people on the ground working with partners. ‘The account managers have enormous workloads to get across all the dealers they have responsibility for,’ he says.

‘It’s really hard to get a lot of their time.’

Part of the reason for this oversight Colli continues, is the cultural residue from HP’s merger with Compaq; the latter of which in his view was not especially channel oriented.

‘When HP merged with Compaq the focus for the first 24 months was very internally focused. Now they’ve started to focus outwardly.’

A fitting location for the renewal of their vows, Colli and several other HP partner representatives attended the companies’ recent channel shin-dig in Las Vegas, where he says he was surprised at how committed HP seemed to be to its partners. ‘HP was extremely committed to the channel’.

This is despite so much publicity that the company would one day go fully direct, talk of which has not been helpful for companies like Leading which do around 70 percent of their business with HP.

Nevertheless, Colli remains philosophical and acknowledges that HP had little choice but to develop some proportion of business outside of the channel to properly compete in the current market. ‘Over the last two or three years this direct model had a lot of focus from senior executives because they needed to have some direct business.’

Now Colli thinks the focus is shifting back. ‘My general feeling is that HP is recommitting itself to make sure that the channel is successful from what I can see from a global position’.

Data#3 recently won a multi-mullion dollar IT contract, comprising mainly HP equipment, for Brisbane City Council, which is expected to have a dramatic impact on its bottom line, and according to Grant, HP’s perception of the value of its channel going forward.

‘It is an example of HP partnering with resellers to gain success and beating people like Dell, Acer and Sony head-to-head,’ he says.

‘I think that HP has an opportunity to provide a difference to its competitors via its channel partners.’

Data#3 saw its shares surge recently after forecasting a better-than –expected 40 percent jump in Q1 net profit to almost $4 million, a achievement the company says it owes to the quality of its vendor partnerships.

However, Grant agrees with many in the channel that HP has not done the best of job of communicating this year considering the situation with ITS2000. Further, some in the channel remain unclear about the current structure of HP’s global accounts.

‘There’s been a miscommunication between HP and its partners which is HP’s responsibility to correct.’

Although these often very lucrative global accounts are mostly managed by HP directly, Grant feels that there are ample opportunities for resellers to participate, provided that they can bring something substantial to the table.

‘It has been well documented for some time now that it is HP’s preferred position to deal with its global customers directly. That does not of necessity preclude its business partners from being involved, but they must add considerable value; different and more extensive than what is being offered today in order to extend that involvement.’

But according to Neville Ray, IT account director with market analysts GFK, the overall market is only getting tougher with total sales through the channel down sharply over the last few years due to a slump in corporate business.

Looking at the 12 months to August/September this year, the total value of sales declined 14 percent after falling 8 percent for the previous corresponding period.

‘If you look at base unit needs, retail is up and corporate is down which is taking the whole market down,’ Ray says, adding that increased direct sales to corporates are contributing to the decline.

‘We know direct sales are increasing for corporate use,’ while increased investment in network and shared storage solutions in the business market is extending the life cycle of PCs and notebooks.

This year especially has seen unprecedented commoditisation in the retail IT space with mass market chains like Big W and Kmart reporting big sales of products like low-end notebooks for the first time.

Acer’s introduction of its $999 laptop and the success of low-end brands like Mercury, which carry neither an Intel or AMD chip has caught many by surprise and indicate, Ray, believes that consumers are no longer as driven by specs and bytes.

‘We are seeing a move away from techno speak to: ‘What can it do for me?’.’

For instance, GFK reports that 60 percent of all notebook sales are now through retail, compared with around 30 percent a few years ago.

‘Which is an amazing transition,’ Ray says. In fact, he ads, the next few years will see a big shift in the whole landscape as process continue to fall, in turn demanding of vendors and the channel new strategies for retaining margins.

‘Margins are going to go down for PCs and notebooks, and there is a need for greater vertical specialisation,’ he says.
‘Vendors need to be more aware of the changes that are taking place throughout the channel, while those operating within it  must develop more competitive offerings.’

For major vendors like HP, it needs to renew its vows with the channel to reflect the new conditions, with both parties having to agree to new terms moving forward.

As Data#3’s Grant points out, it doesn’t have to follow that tougher market conditions result in the channel being shouldered out of the picture, so long as it can add value.

In the case of HP, which was mandated by the market as much as anything else to develop some direct business, he believes the fact that it has now fully renewed its commitment demonstrates that it still sees the bottom line value of having good partners.

‘In terms of HP’s direct strategy, the partner community would certainly like HP to de-commit to this and I have a sense that within HP similar views are developing,’ he says.

But the onus remains on the partners to do more with HP products in their accounts. ‘That’s the quit pro quo.’

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