In a lengthy document filed with US authorities last night, HP has said failing to manage its channel business effectively could pose a risk to its two entities once it splits in November.
The vendor outlined a number of factors that will pose a risk to the two companies in a 316-page document which went into great detail about the new businesses and was filed with the US Securities and Exchange Commission (SEC) yesterday.
In November, HP will split into HP Inc – an enterprise server, storage, services and infrastructure business – and Hewlett Packard Enterprise, which will focus on printing and personal systems.
HP said in the filing that there are a number of problems which could arise due to the split, mainly because it will be breaking new ground when it divides.
"We have no history of operating as an independent company [Hewlett Packard Enterprise] and we expect to incur increased administrative and other costs following the separation by virtue of our status as an independent public company."
HP said there is a possibility it might not execute the split in line with its proposed timeline and said the process will be a costly one. It also admitted there is a risk the separation "may not achieve some or all of the anticipated benefits".
In the document, HP said the successful execution of its indirect strategy is integral to the financial performance of both companies. HP said in both its fiscal 2013 and 2014, its top-ten global disties and resellers collectively accounted for 12 per cent and eight per cent of HP's sales.
"Our financial results could be materially adversely affected due to distribution channel conflicts or if the financial conditions of our channel partners were to weaken," the document reads. "Our results of operations may be adversely affected by any conflicts that might arise between our various distribution channels or the loss or deterioration of any alliance or distribution arrangement.
"Moreover, some of our wholesale distributors may have insufficient financial resources and may not be able to withstand changes in business conditions, including economic weakness, industry consolidation and market trends. Many of our significant distributors operate on narrow margins and have been negatively affected by business pressures in the past.
"Moreover, since each distribution method has distinct risks and gross margins, our failure to implement the most advantageous balance in the delivery model for our products and services could adversely affect our revenue and gross margins and therefore our profitability.
"Revenue from indirect sales could suffer, and we could experience disruptions in distribution, if our distributors' financial conditions, abilities to borrow funds in the credit markets or operations weaken."
The vendor added that inventory management is another key priority for the two companies once they are established.
"We must manage both owned and channel inventory effectively, particularly with respect to sales to distributors, which involves forecasting demand and pricing challenges," HP said. "Distributors may increase orders during periods of product shortages, cancel orders if their inventory is too high, or delay orders in anticipation of new products.
"Distributors also may adjust their orders in response to the supply of our products and the products of our competitors and seasonal fluctuations in end-user demand. Our reliance upon indirect distribution methods may reduce our visibility into demand and pricing trends and issues, and therefore make forecasting more difficult. If we have excess or obsolete inventory, we may have to reduce our prices and write down inventory."
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