Ructions continue in HP's distie channel

Ructions continue in HP's distie channel

With another round of review soon due for HP's distribution channel, rumours are rife of trouble in the ranks. The strongest ill-wind blowing in the channel suggests that Tech Pacific is using HP as a "loss leader" to build its market share and boost its overall sales volume.

Tech Pacific's managing director, Kerry Baillie, emphatically denied it was selling HP product below cost but agreed that HP is doing itself no favours by continuing to support a large number of distributors.

"That is absolutely untrue," Baillie said of the "loss leader" accusations. "It is definitely not the case. Our gross profit on HP would be around the median for our business. Sometimes we will make tactical sales on a large deal if there is a particular reason for it. But last year we made good money out of selling HP and it was a valuable contribution to our bottom line."

What is certain is that the price war on HP PCs, notebooks and printers, continues to rage. Margins have been cut to the bone and there is mounting evidence that some distributors are suffering badly.

As a result, distributors say the vendor is ready to slash the number of wholesale players servicing its imaging and printing group (IPG) and personal systems group (PSG) from seven to three.

When the vendor reviewed its channel late last year, it merely put off the hard decisions for six months in the hope that some organic rationalisation would take place. Except for the addition of Synnex and the parting of ways with Brightpoint, existing HP and Compaq distribution contracts were simply extended for six months with a few amended terms and conditions.

Managing director of Ingram Micro, Steve Rust, is one person who is both advocating for, and expecting a reduction in, the number of distributors to take place soon.

"I have always maintained that there should be [less distributors]," Rust said. "HP did flag late last year that it would be undertaking an ongoing and thorough review of the channel. Commonsense would say that over time HP will reduce the number of distributors.

Rust would not divulge the terms of the contract that took effect from November 1, 2002, but sources confirmed that "all the distributors signed a six-month extension" to their agreements that expired on October 31.

HP declined to comment on the status of its distribution channel and would not agree to speak with ARN but speculation is rife that the real cull will come on April 30 when those six-month extensions expire.

All distributors in HP's channel are waiting for the next move by HP and April 30 is looming as a crucial date in any rationalisation.

Rust said: "They will have to act soon because the business is over distributed and that is not good for anybody."

For more on the HP distribution strategy, see this week’s issue of ARN.

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