Seven months after it completed the post-merger overhaul of its channel programs, HP Australia has begun a fresh review of its distribution channel and a re-evaluation of credit relationships with some of its direct resellers.
ARN has learnt that at least two direct resellers had their credit limits slashed by 50 per cent in the last few weeks in a move which Tony Bill, vice-president of HP Australia’s Personal Systems Group (PSG), described as a standard review of partner performance and credit worthiness.
“I can’t comment on specific activities that take place between HP and its partners and I can’t comment on any specific credit reductions you may have heard about. What I can say is that we continually look at the size of credit available to the channel,” Bill said.
“We do ensure that we have enough credit capacity in the channel across all HP products to ensure that it facilitates the size of our business on a monthly, quarterly and yearly basis.”
One of the resellers who contacted ARN last week, but declined to be named, said the decision came ‘out of the blue’ and had not been backed by a formal review process.
“There was no negotiation or a formal review process involved. I just got a letter from a national sales manager advising me my credit’s been reduced by 50 per cent,” the reseller said. “This is how HP has become — totally impersonal.”
The reseller claimed tightening of reseller credit terms were not unique to HP Australia, with resellers in the US reporting similar predicament.
“There is a general agreement that HP is worried about its credit exposure to resellers both here and overseas,” he said.
While other tier one resellers, such as Data#3 in Brisbane, QLD, and Rich Computing in Newcastle, NSW, have not had their credit terms revoked, MD of Data#3 John Grant said that whatever HP was doing should not surprise its resellers.
“Clearly, what all vendors are doing is trying to decrease their exposure across a number of players,” Grant said. “They are doing that by reducing resellers credit limits or forcing them to go through tier-two. That’s a current trend and it’s going to keep happening, it doesn’t matter whether it is HP or IBM or someone else.”
Rich Computing’s MD, Steve Rich, said his company was currently negotiating its credit terms with the vendor and had been advised that there was a significant pressure on HP Australia from the company’s regional headquarters in Singapore to reduce exposure all round.
“For the past 12 years we have always adhered to Compaq’s, and previously Digital’s, required terms of payment,” Rich said. “So, we are maybe in a better position than those that might not have been so pedantic about paying on time, and that’s why we are still negotiating.”
“In fact we are glad that HP is tightening up on this, as before we felt that the higher profile partners may have been getting more lenient treatment, just because they were supposedly bigger, or a public company, or whatever.”
Rich said that his company’s purchases from HP/Compaq had quadrupled over the last couple of years.
He understood that the company was facing a tough job of balancing their business growth with the risks of extending credit generally.
“Seems like a classic struggle between the finance and sales sides of a large corporation,” Rich said.
Indirect resellers and distributors contacted last week claim no changes have been made to tier-two credit terms. However, managing director of Ingram Micro, Steve Rust, acknowledged ‘the gradual tightening up of credit from manufacturers to partners and distributors to partners’ has been felt in the industry for a while.
Ingram Micro, which is currently undergoing a review as part of HP’s latest distribution channel evaluation, said the companies will enter discussions about Ingram’s business model in July.
Rust welcomed the review observing that HP, with their personal systems, imaging and printing, servers and storage, networking and services divisions, was over-distributed in some areas.
“I believe they’re going to be doing a review across all their businesses,” Rust said. “I would hope that they would have an appropriate number of distributors.”
A recent overhaul of its networking distribution channel has seen the HP channel in the area reduced to the two largest distributors, Tech Pacific and Ingram Micro. Rust doesn’t believe this area will be reviewed again.
“They haven’t really had a review in other divisions since they integrated with Compaq, so this is the first time they’re going to partners and they may terminate some underperforming relationships and take on some additional distributors in niche areas,” he said.
While Dicker Data’s, Fiona Dicker, said HP had asked her ‘not to comment on the review’, Digiland’s marketing manager, James Macbeth, said his company had a review six months ago and was not aware a new overhaul was under way.
In a written statement to ARN, Tony Bill pointed out that “the distributor review will be the first formal review since the realignment of the channel brought about by the merger”.
The review will include “both current and potential new distributors”.
“Distributors will be measured on the same criteria including their ability to grow new markets and their coverage of these markets,” Bill said. “HP will be working closely with our distributors during this time.”
With Daisytek currently in administration, at least one spot may have to be refilled in the IPG distribution line-up.
The process is expected to be completed in time for HP’s new financial year, which starts on November 1.