August 2009 Archives

HP (NYSE: HPQ) has made it clear; its sights are set on dominating the datacenter.  Cisco better watch it!  Addressing partners in the XChange spotlight, Adrian Jones was clear about HP's goals and the channel's role in meeting them.

"We have 19 product categories at HP and we lead in 14 of those. We want to lead in all 19, but we cannot do that without the channel," Jones said.

HP is determined to go after Cisco's market share, and the latest channel investments show it means business.  So, HP is doubling down on its channel investment; it spent $550 Million in MDF for PartnerOne partners. The incentives have been even richer for the Procurve networking product line; those who win over competitive accounts will enjoy tripple the benefits.  Bravo, HP, for aligning product portfolio strategy with channel incentives!  Obviously this move is meant to strike at the heart of Cisco's market. 

What's the channel's reaction? One HP reseller has commented:

"As an HP partner business has been tough this last year primarily due to the economy and pressures the vendors are under to reduce costs. To HP's credit they have indeed stepped up to help many partners with MDF and IBF funding. They deserve credit for truly investing in partners while many companies have pulled back in their support of the channel."

Not to be outdone, Cisco's (NasdaqGS:CSCO) Surinder Brar recently reminded partners on the Cisco blog that the company has paid out significant VIP incentives over the last six and a half years and has incorporated additional technologies to the VIP program. The VIP incentives are estimated to generate between one third and one half of partner profits.  And Cisco is simplifying the customer satisfaction requirement so that partners will go through the process only once for all technologies.

Clearly the battle over market share has escalated the battle over channel mindshare and leverage.  Partners who sell both Cisco and HP products have the opportunity to reap rich rewards.

On August 27, Dell (NasdaqGS: DELL) reported a decrease in both revenue and profit.  Profit fell 23 percent and sales fell 22 percent in the May-July period year over year.  Like HP (NYSE:HPQ) and Intel, Dell is seeing a revival in consumer spending, but corporations are still holding back.  Dell's sales to corporations fell 32 percent from last year to $3.3 billion. Dell is hurt more than HP by weak corporate IT spending, since about 80 percent of Dell's business comes from sales to businesses, government agencies and other institutions.  Even though consumer PC unit sales are up 17%, the popularity of lower priced units (like netbooks) and aggressive price cutting have created a 9% drop in segment revenue to $2.9B.

 Dell faces multiple challenges as it fights to maintain its market position.  While it currently is second behind HP in market share, it is working to evolve its culture from a direct sales model to a channel-friendly model.  After 25 years of selling directly to customers and with only 15% of revenue currently coming through the channel, it has to work hard to build trust and nurture channel relationships.

 Jim Defoe, Dell channel executive for the US and Canada, is featured in an informative podcast which describes the steps Dell is taking towards become a channel-focused culture.  Deal registration, rules of engagement, escalation processes and, significantly, a policy of dual compensation are all in place to support this effort.

Michael Dell anticipates improved corporate demand in 2010 which is especially encouraging for Dell.   With HP and Acer encroaching on Dell's market, selling into corporations through solid channel relationships becomes even more important. Look for more investment in partner incentives from Dell in the future.  Partners may have more leverage in working with Dell now than ever before.  Using tools, like deal registration and certification will be key to a successful relationship and mutual success.   

HP (NYSE:HPQ) announced lack-luster results on August 18.  Sales year over year for the quarter were down 2.1% to $27.5 B and profits were down 19%.  Almost all divisions seemed to reflect the economic malaise.  Sales in Europe were particularly challenging.  However, like IBM, services were a bright spot and have had a positive impact on profitability.  The services profit margin was 15%, up from 13% a year earlier.  This division contributed about a third of the company's profits during the quarter.

The good news for HP is that it continues to gain market share in PCs and servers.   Fortunately, HP has not been aggressively lowering prices to fend off rivals such as Acer and Dell.  However that may well change, particularly in the server arena.  Oracle's purchase of Sun Microsystems was just approved by the U.S. government.  The server wars are about to heat up and aggressive pricing is to be expected. 

Acer recently revamped its partner program and launched the new and improved ACE (Acer Channel Excellence) program.  The new program is now in line with others in the industry.  As expected, Acer has created a premier partner tier to cultivate those “elite” partners who do $100,000 or more in business annually. Those partners will receive additional pre and post sales support, have access to a number of tools and training and will be able to register deals.  About 300 U.S. Acer channel partners will qualify for the ACE Program.

According to Greg Prendergast, VP Acer Commercial sales and marketing,

"Much of the feedback we received around response times, more access and engagement with Acer field personnel, end-user deal registration, service, lead management, demo programs, etc. was built directly into the new Acer ACE program components".

No doubt about it…IT spending is weak.  IT sector sales growth has been anemic if not non-existent.  The last several weeks have seen dismal results from Microsoft and equally sad results from Cisco (NasdaqGS: CSCO).  Cisco’s year-over-year sales were down 18% to $8.5 B for the quarter ended July 31, 2009.   And earnings were down a staggering 46%.  IBM (NYSE: IBM) was able to grow profits 2.3% in this tough environment, but sales were down 13% for the quarter year-over year.  HP (NYSE: HPQ) is due to announce results for the quarter ended July 31 on Tuesday August 18.  JP Morgan anticipates HP will beat expectations, but HP only expects revenue for the quarter to be flat to down 2%-hardly exciting results.

The merger between Sun Microsystems and Oracle is still in process, and the close date is estimated to be after late summer. Uncertainty and doubt are in the air, since there’s a question as to whether Oracle will keep Sun’s hardware business.  A wise sales manager once said "When uncertainty surrounds, opportunity abounds". 

The buzz in Silicon Valley is that HP (NYSE: HPQ) and IBM (NYSE: IBM) are aggressively chasing after Sun’s customers. These two are offering sweet deals (read discounts) including discounted consulting when Sun customers switch over to a competitive server platform.  Given IBM’s thrust to lead with consulting, this could work out very well for both customers and VARs.  Customers will have an easier migration, and VARs can pick up new customers while taking advantage of IBM’s consultants when they work together on deals.  HP is also highlighting an offer of technical assistance and advice and is wooing customers with the headline “HP to Sun Customers: We’ve Got Your Back”. 

How’s it working out?  Rumor has it HP has switched 100 Sun customers over to its server platforms in the last six months.  And IBM is touting over 250 Sun customer wins in the first half of 2009.  Looks like there’s still some nervousness in Sun’s customer base, and Sun customers are inclined to explore options.  The longer the merger is delayed, the more time VARs have to make inroads. This presents a golden opportunity for HP’s and IBM’s VARs as well for those with other competitive products. VARs can still grab market share and need to act quickly.

There’s been a lot said about IBM’s (NYSE: IBM) consulting, software and services recently, and these business elements have had a positive impact on profitability.  It might look like hardware is being phased out.  But no, it’s still an important core business, including the “big iron” which Big Blue is known for.   The mainframe business (hardware plus related software, services and other items) continues to be an important business for IBM.  BusinessWeek recently stated that analysts estimate sales of the big computers represent less than 4% of IBM's revenues in a good year. However, the combination of mainframe hardware, storage, software, and services account for nearly half of IBM profits. Clearly the mainframe hardware is still a key element of the solution sale.

In addition IDC reports that IBM was the world's No. 1 server vendor in 2008 in terms of revenue, with about 32% market share, followed closely by HP with about 30%.  It’s not the hardware per se that’s the issue, rather the margins which can be derived from the hardware.  As IDC analyst Crawford Del Prete said