HP refuses to make suicidal leaps on pricing

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Hewlett Packard has walked away from some hardware deals in the UK as the recession encourages other vendors to adopt "suicidal" pricing policies to chase corporates' shrinking IT spend.

The firm's UK boss said at a meeting in London today that it was banking on a "flight to quality" in the market, as customers reel from the recession and look for suppliers who they think are still going to be around in a few years, and weaker vendors are forced out of the market.

The IT giant released figures last week that showed a revenue slump in its main product business, but figures overall were boosted by the performance of EDS, the services giant it took over last year. Nevertheless, the firm is asking employees to swallow a paycut scheme so that it can avoid making further layoffs in the future.

UK and Ireland managing director Steve Gill said this morning it was impossible to say when the recession would begin to ease, and that in the meantime the vendor was adapting to its customers' own changed outlook.

On the one hand, customers are looking to drive hard bargains, while at the same time, when it comes to strategic purchases and services deals, said Gill, "they're looking for a partner who'll still be there in five, six or seven years."

While some bigger customers in particular were being aggressive when it came to striking deals with the vendor, the firm said it would not be sucked into pricing wars.

Gill said "some of the competitors have signed up to some suicidal deals," but that HP was walking away from such business. Rather, the firm was using zero per cent financing and other strategies such as more bundled services to tempt business customers.

Personal systems group boss Steve Wright insisted the firm was doing what it could to help channel partners through the recession. "We have changed our channel compensation. It was set in a very different world. We've simplified it," meaning resellers should find it easier to make margin on HP kit.

Nevertheless, Wright said fallout in the channel was inevitable, just as it would be in the vendor and service markets, and amongst customers. "There will be a degree of consolidation, where people haven't got a strong value proposition or niche."

Sean Finnan EDS vice president for the UK and Ireland, said suicidal pricing was less of an issue on the services side. Customers were prepared to "look in the box" he said, and see that benefit they could get from services and outsourcing deals. At the same time he said, having HP's financial services behind EDS gave it more flexibility in chasing business. He said customers were "drawing in" and focusing on their operations to see how best to weather the storm.

"In a way that's really good for us. Our demand signals are stronger than ever," said Finnan.

Gill said the services market was ripe for consolidation, as it was still "massively fragmented", particularly compared to the vendor market. Even the merged EDS and HP took just 7 per cent of the market as a whole. He said the firm was not likely to plunge into the acquisitions market in the UK, though there might be other acquisition targets for it worldwide as the recession grinds on. ®


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