More stringent trading terms and conditions, including less soft dollars and tighter credit control than Compaq offered, will be implemented following the channel review currently being undertaken by the post-merger HP.
Tony Bill, general manager of HP's personal systems group, told ARN last week new contracts will accompany a channel rationalisation, which is due to be finalised in October and "executed" on November 1.
Debtors' account terms, customer management and rebate schemes utilised by the two pre-merger companies were vastly different. HP previously provided early payment discounts whereas Compaq did not. On the other hand, Compaq was very generous with rebates and outstanding accounts, unlike HP. The challenge is now for the two to be integrated without upsetting channel partners, Bill said.
"The new terms will be a combination of the two," Bill said. "I am currently working on the first iteration of the consolidation. Some areas where HP has better terms and conditions in regards to early payments will be adopted.
"Meanwhile, Compaq maybe had some better market development funding programs available to the channel, and it is most likely they will be adopted."
Bill confirmed the hybrid model to emerge would be tougher, and hinted there would be a tightening of 60-day credit terms previously tolerated by Compaq. "Yes, it will come down from the Compaq terms," he said. "But it may increase compared to the HP terms."
There was no denial either about rebates being under threat. "I don't want to skirt the issue," he said. "We as a company need to rationalise our soft dollar program. We need to ensure it is affordable but also that it drives the right behaviour within the channel. So we will find a middle ground, which won't necessarily be the most generous parts of both pre-merger co-op programs.
"Some of the goodness will survive but we also need to be very clear that part of the objective during this transition is to ensure that HP captures some value in the process of consolidation."
Bill said all distributors will have to sign new supply agreements when the rationalisation is complete and that there will be a month's warning for those who do not make the cut in the new channel structure.
"Within the contracts from both pre-merger companies there is a 30-day exit clause," he said. "So we will be providing 30 days notice. The process of review will commence in August and we will launch the new channel on November 1, which is the start of HP's financial year.
"Notification will take place in October. Existing contracts will apply up to October 31."
Bill said trading terms and conditions under the post-merger HP have been the biggest concerns of the channel in his consultations. The need for rationalisation is also seen as paramount by all partners, as has the risk of being stuck with obsolete inventory and account management, or "who they will be dealing with", after HP's internal restructure.
"All the distributors are astute to the fact that we have too many of them," he said. "They see that as a reality. Currently we have over 50 direct resellers and eight distributors in the Australian market and I believe that is too many, so that will be consolidated.
"I have yet to come up with a number that we will reduce it to, but what they really want to know is how we are going to judge that."
Bill said he will be asking distributor partners to demonstrate the areas they are taking HP to market that other distributors or partners are not. "If we have four that are attacking the same customer space then all we are doing is eroding HP margin and their margin. It is a non-sustainable strategy."