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HP takes hard line with partners

CEO Mark Hurd says company wants to make sure partners are in line with selling multiple HP products at once.

If your local computer salesman pushes Hewlett-Packard peripherals with your PC purchase a little harder than usual in coming months, it may be because HP is looking to put the squeeze on its channel partners.

The Palo Alto, Calif.-based company said it's re-evaluating its sales and distribution relationships because some partners are out of step with HP's vision of bundling its products.

HP Chief Executive Mark Hurd said he's interested in keeping as many of HP's current partnerships intact as possible but sent a clear message that the company will "double down" on its exclusive relationships and may re-evaluate its compensation structure to make sure partners are focused on selling multiple HP-related products: an iPaq suggested with a Pavilion laptop purchase, for example, or ink cartridges and an extra package of HP paper to complement a printer purchase.

"We really like partners that are very focused on HP," Hurd said during a conference call Tuesday. "It doesn't mean that they are exclusively focused on HP, but when we go to market together, they are focused on what we call the attach rate and that we enlarge our content of product.

"What we don't like are the partners that lead with the HP brand and then hollow out the HP product and replace it with other content," Hurd said.

Hurd didn't say which partners are causing concern, but he did acknowledge there may have been conflicts between partners and HP's direct-sales telemarketing organization in Colorado Springs, Colo.

"It would not be a bad thing for us if we kept the same number of partners, as long as we had them all focused on HP content," Hurd said.

Independent industry analyst Stacey Quandt noted that HP may need to make even harder choices going forward, as it strikes a balance between its resellers and the company's direct sales model.

"Hurd will need to use his hands-on operational skills, honed during his 25 years at NCR, to address these challenges," Quandt said. "HP is barely making a profit on the hardware it sells. Part of this problem stems from the fact that HP is a volume provider of commodity personal computers and x86 64-bit servers, which have low margins and lack the efficiencies of Dell's distribution model."

The refocus on HP's sales channels comes as the company announced a major restructuring. As part of the laundry list of changes, HP said it is dissolving its Customer Solutions Group, a stand-alone division that had been responsible for sales to corporations, small and medium-size businesses and public-sector customers.

What used to be a single unified sales group in HP will now be broken into three main product groups: business servers and storage, imaging and printing, and personal systems.