Discounting equals disappointment for HP storage

Channel management issues cast shadow over otherwise healthy financial results

Poor results from its storage and enterprise servers business cast a shadow over otherwise healthy financial results for HP for the last quarter, with resellers and analysts blaming heavy price discounting and the struggle to migrate from selling hardware to services.

"Solid results in personal systems, imaging and printing, software and services were overshadowed by unacceptable execution in enterprise servers and storage," said HP chief executive Carly Fiorina.

Fiorina hightlighted issues with channel management in Europe, "including channel compensation, overly aggressive discounting and the transition to a centralised claims process".

HP enterprise servers and storage reported revenue of $3.4bn, down five per cent year over year. Total storage revenue totalled $709m for the quarter, down 15 per cent year over year. Online storage, including EVA and XP enterprise storage, declined 23 per cent year over year, while nearline storage, which includes the tape library business, declined 16 per cent.

IDC analyst Claus Egge commented: "We still think firms are buying [storage] capacity but they are paying less for it. Price erosion and commoditisation of expensive disk [products] has happened quicker than we thought, and vendors are not making the same revenues and profits as they were."

And Donal Madden, business manager for HP enterprise products at distributor Ideal, agreed, pointing out that HP was having to drop its prices dramatically to compete with the likes of EMC and IBM in the mid-range enterprise storage market.

"HP is not losing sales but it is having to discount very deep and be significantly more aggressive [on price] than we have seen it before," he said.

Madden added that many resellers are struggling to cope with the transition from being hardware suppliers to being more services-led.

"They [resellers] are having the same issues; how do they focus a salesforce used to selling hardware into selling more services. It is almost an impossible tightrope to walk," he said.

HP's recent move to a central discounting structure, which has seen radical changes in the way resellers and distributors set prices, apply discounts, and reclaim money from HP, may also have played a part.

"It could take a while for the system to bed down," said Madden.