HP attacks IBM over margin squeeze

HP attacks IBM over margin squeeze

IBM might have decided its resellers only deserve 7 per cent margin for box shipping, but HP has decided to sing a different tune.

Chris Greig, HP's GM of business customer sales, believes the vendor must preserve current margins in the face of the widespread belief that resellers don't deserve any better. "It's not very fashionable to do fulfilment in some people's eyes, but someone's got to do it."

Greig implies services such as delivery should be included in the margin: "But these things have got to be done, and people have got to be paid to do it."

As a result, Greig said HP will not force its resellers to live on margins that are too low to sustain healthy businesses. According to ARN sources, HP resellers can expect up to 26 per cent off the list price.

Greig's comments follow IBM's recent announcement of a Web-based pricing structure that incorporates a 7 per cent margin for resellers, excluding special bids and special focus products. It has also scrapped its previous estimated street price and general reseller price models.

He has attacked IBM's move by explaining HP's philosophy is to allow resellers margin flexibility, something that's long been a feature of traditional channel structures. "We need to allow channel partners to regulate their margins based on market forces," he said. "We think it's necessary to have healthy competition."

"As a run-rate business, there is no channel that can survive on 7 per cent margin," Greig continued. "Any accounting company will tell you that at 7 per cent, there is no way you can live with those sort of margins."

Greig went on to pour cold water on IBM's new model claiming a 7 per cent margin is an unsustainable business model for final-tier resellers. "I think a Web-based model could lead to artificial pressure on margins," he said.

Given the current tough market conditions, Greig said it would "not be HP's view" to inflict more margin pressure on resellers.

Greig also attacked Dell's business model - IBM's new public enemy number 1 - for pulling the reseller and vendor apart, rather than using the channel to improve customer service.

"We've found the best way to counter [the Dell] model is not to copy it," he said.

As for IBM's assertion that resellers must focus exclusively on building services, Greig continued by stating vendors need to help resellers smooth the transition. "You can't switch the lights out and overnight go into the next [business model]." He said it was important vendors didn't cut off a revenue stream. "I think that's misguided."

Meanwhile, an IBM spokesperson jumped to the company's defence this afternoon with two key rebuttals.

"Margin on a unit of one is not a true picture of what IBM offers its resellers," the spokeswoman said. With the majority of business conducted through Special Bids and specific promotion-based rebates, she said there are still significant opportunities.

"A blanket 7 per cent is not an accurate picture," she said. "People need to be very clear on that."

She continued by arguing it's up to resellers to charge for services such as integration and consulting.

IBM's second argument is that IBM's new Web price is now lower than that under the former structure. "IBM is now cheaper on a wholesale price," she said.

The spokeswoman was, however, unable to detail exactly what margins distributors can now expect from IBM.

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