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HP CEO warns VARs

Mark Hurd says company is fed up with partners who tinker with the company's PCs

NEW YORK – Hewlett-Packard CEO Mark Hurd is still talking tough to resellers, repeating that he will back only VARS who add value to its products. At the same time he said he’s investing in HP’s sales force.

“Are we direct or indirect? I do not know what that means,” Hurd told reporters and industry analysts here this week. “We have great partners and we need to leverage them. They give us extended reach and compliment our solutions.”

But he warned HP will not partner with resellers, who for example, strip out standard parts from HP PCs and replace them with grey market parts. The HP parts are then used for the reseller’s replacement business. Hurd said that is an accountability issue for him.

The partners he wants to support are investing in their business and building on HP content with their own applications and services. HP will give incentives to those partners and bring its internal compensation down to the channel. “It is really simple,” he said. “The better your performance, the better money you make.”

Hurd alsosaid HP is investing in its sales force. He wants to get HP’s sales organization fully deployed to the appropriate buying points at a lower cost. The opportunity he believes is huge with more than 50 million HP printers and 30 million HP PCs shipped just in 2005. “That is an incredible installed base. From where I come from it is mind bogglingly. We have to leverage the installed base,” he said.

The former president of NCR’s Teradata operation, Hurd replaced Carly Fiorina as HP CEO eight months ago.

In a meeting with 400 securities analysts and reporters here, Hurd said he wants to build a culture of execution and accountability. “We will do everything possible to execute on what we say and what we want to do. We will live up to our commitments,” he said.

He did not mince words about his first impressions about the company. His viewpoint of HP after 60 days on the job was mixed. “I would tell you that not everything was good, but also not all was bad.”

The company’s results were inconsistent and therefore led to a volatile stock price, he said. On the other hand, he added, HP’s technology portfolio is on the cutting edge.

However, customers have told him HP is a difficult company to do business with: It’s tough to find company decision makers, the speed of making decisions is unsatisfactory and there was little accountability.

“Net-net in my first 60 days into HP, despite what I thought, not all at HP was bad,” he said. “But again, it wasn’t perfect.”

Hurd then outlined a new operating framework for the company’s future that will be based on three areas: targeted growth, efficiency and capital strategy. Work on all three areas have started and must be done at the same time.

At the heart of the plan is to take cost out of the complicated data centers of customers, deliver better information and to be the best implementer of next generation technology that furthers the company’s adaptive enterprise strategy. Besides enterprise, the plan will also focus on mobility computing and printing. Hurd believes enterprise, mobility and printing are market trends the company must take advantage of.

The next-generation data center architecture, Hurd said, will advancing the company’s adaptive enterprise strategy. According to him, the cost of computing is declining and the move away from mainframes towards industry-standard computing will continue.

HP will build on its servers, blades, storage systems, management software and IT services portfolio to take advantage of these trends.

Hurd’s overall goal is to automate the entire data center into a round-the-clock computing model controlled remotely over blades that is secure and integrated with management software.

In mobility, the company has PC clients, notebooks, handhelds and workstations which are being positioned to be always ready, always on and deliver personalized services.

Hurd also charted a new ubiquity-printing model. “We are not going to talk about printers, but printing,” he said. The market still perceives the company as a consumer printer maker, he admitted. However, he said the printing market stretches over SMB, commercial and graphics market places. The company recently acquired Indigo Digital Press and Scitex, two companies in the industrial printing market.

“Today, industrial printing is analog and it is moving to digital, and with that it brings a significant aftermarket business,” Hurd said.

Vyomesh Joshi, executive vice-president of HP’s imaging and printing Group, said the strategy is not to just capture printer unit share, but actual pages printed share. For example, the copier market is a US$24 billion market that is declining. The plan is to have HP laser printers print more of those pages than its competitors. Joshi said if the company can do this it would mean better profitability.

He added that HP is also going after marketing collateral, packaging and signage printing, which he hopes will drive the very profitable aftermarket consumables business.

Hurd believes that by executing on this new operational framework it can help customers cut down on labour costs over time. “We need to eliminate the requirement of labour so that you can automate those processes,” he said.