HP Forecast Adds to IT Vendors Seeing 2010 Uptick

By D.H. Kass

September 26, 2009

Hewlett-Packard Co. joined a growing list of prominent IT companies expecting the global technology market to pull out of its slump in 2010 and make a surprising about-face.

Speaking at the vendor’s annual analyst meeting, HP chief executive Mark Hurd said that an aging IT infrastructure and a timely corporate buying cycle could dovetail into a noticeable rise in technology spending next year.

“We expect the IT industry to return to growth in 2010 and believe that HP will outpace the market,” Hurd said. “We will grow faster than the IT market.”

Hurd’s remarks echo those he made in August following HP’s third quarter financial report. At the time, he said that HP was confident it will be an “early beneficiary of an economic turnaround.”

HP’s market view mirrors other, similarly positive sentiments emerging with greater regularity across the industry.

Intel chief executive Paul Otellini last week said the global market for personal computers is recovering more quickly than expected and is “poised for resurgence.”

Otellini’s statement followed on the heels of an favorable outlook the chip manufacturer offered in late August when it revised its third quarter revenue projections from about $8.5 billion ahead to about $9 billion. The company will report its third quarter financial results in mid October.

McAfee Inc. chief executive David Dewalt added to the chorus when he told Reuters last week that the software maker was seeing some returns from an improved business spending environment.

This latest spate of optimism follows a positive financial report by IBM in mid-July when it reported a 12 percent boost in net income to $3.1 billion, and an 18 percent spike in second quarter earnings to $2.32 per share.

The increases represented the highest year-over-year quarterly jump for other than fourth quarter results in the company’s history. In response, IBM revised its 2009 earnings forecast upward to at least $9.70 per share from its early $9.20 per share.

Sam Palmisano, IBM chairman and chief executive said at the time that the vendor’s second quarter performance was “well ahead of pace for our 2010 road map of $10 to $11 per share.”

Even Dell Computer Inc., which has posted declines in revenue and profit from the year earlier for four consecutive quarters, recently reported a sequential 10 percent boost in shipments and a 3 percent climb in sales for its second fiscal quarter. The company attributed its improved performance to more stable IT spending, particularly a “sequential increase in sales from enterprise products.”

Not overly confident

Despite Hurd’s projection for HP to outperform the market next year, the company’s confidence isn’t spilling overboard. HP set its revenue estimate for 2010 at $117 billion to $118 billion, somewhat below the $118 billion in sales analysts expected, prompting an immediate—albeit slight--drop in its stock price.

“We expect to drive EPS growth in fiscal 2010 on relatively modest revenue growth,” said Cathie Lesjak, HP executive vice president and chief financial officer. “This highlights the leverage in our operating model.”

Owing to the expanse of markets in which companies such as HP and IBM compete, their performance and outlook is often seen as a barometer of corporate spending in a number of segments, including hardware, software and services.

Hurd said that should business spending improve, HP was “well positioned to win” owing to its mix of technology and services, a cost structure that he described as “much improved from where it was several years ago,” and “operating leverage to improve our financial performance.”

“We plan to be able to fulfill more growth than is in our plan,” he said. “We expect to gain share in a large, addressable market.”

Channel News Roundup:

Ingram Micro Inks Distribution Deal with QLogic

Distributor Ingram Micro Inc., through its Infrastructure Technology Division, has signed a distribution agreement to carry QLogic Corp.’s line of networking infrastructure solutions.

The deal covers QLogic’s range of storage networking products, including its new Fibre Channel over Internet (FCoE) line, 10 Gigabit5 Ethernet (10GbE) and other emerging technologies.

The vendor aims its products at mid- to large-sized enterprise customers in vertical segments such as finance, insurance, manufacturing, aerospace and automotive.

Networking and telecommunications researcher Dell’Oro Group projects the market for FCoE adapters and Converged Network on Motherboard (CNOM) equipment to increase by more than 200 percent annually to about $400 million by 2013.

Ingram officials said that the arrangement with QLogic was particularly important because the vendor’s products fit well with the distributor’s data center initiatives.

“QLogic is an important relationship for us as we build out our data center and overall IT strategy,” said Scott Zahl, Ingram vice president, vendor management. “QLogic has the converged network, storage and data center solutions we want.”

QLogic, which also maintains U.S. distribution agreements with Arrow ECS, Arrow ECS’ Moca Group, Promark, Bell Microproducts, Synnex, Tech Data and Info-X, said that it was prompted by its new technology, specifically the FCoE products, to expand its distribution lineup, a move it has previously resisted.

“This comes at a good time for us with our new FCoE lines hitting the market,” said Jim Rothstein, QLogic vice president, North America sales. “When we mapped our VAR base, we found that we had only 20 percent overlap of resellers we’re already doing business with. It’s a great match for our product portfolio as it broadens.”

QLogic said that about 25 percent of its sales go through its distributors and channel partners. The remainder is generated from sales to OEMs, including Hewlett-Packard, IBM, EMC, Sun, Dell and Hitachi.

Rothstein said that QLogic advised its other distributors of its agreement with Ingram and that “nobody’s alarmed by it.”

Ingram also carries FCoE products from Emulex, a primary QLogic competitor, and Cisco Systems.

Zahl said that Ingram will recruit new resellers to the QLogic portfolio and is already providing inventives to partners to carry the vendor’s networking equipment.

IBM Opens Offshore Innovation Centers

IBM Corp. said that it has opened a new Innovation Center in Cape Town, South Africa, its third of five such planned facilities this year in emerging and growth markets.

In addition to Cape Town, the vendor also has opened new centers in Brazil and Vietnam, with plans for hubs in Poland and the Philippines by year’s end.

The Cape Town location is the seventh IBM has opened in growth markets in the last two years and is part of the vendor’s $120 million, two-year plan to expand its presence in sub-Saharan Africa.

IBM officials said that the company has spent more than $600 million for its 47 Innovation Centers worldwide. The facilities are intended to provide training, consulting services and hands-on technical assistance.

Services are aimed at local customers, business partners, start-ups, ISVs, IT professionals and members of the local academic community.

Brocade Adds Services Certification for Channel Partners

Brocade Communications Systems Inc., a provider of data center networking solutions and services, has expanded its global Alliance Partner Network to enable certified partners to resell its professional services and support packages.

The vendor, which unveiled the Alliance Partner Network in May, said that its new Professional Services Program (PSP) and its Support Delivery Program (SDP) are designed to help channel partners lift profits with additional service and support offerings.

Under the PSP, certified channel partners will be able to sell Brocade’s professional services or their own offerings under the vendor’s certification. Certified members of Brocade’s SDP will be allowed to deliver Tier 1 and Tier 2 support and the vendor’s new Assurance Limited Lifetime Warranty on select IP networking products.

Marc Randall, Brocade senior vice president of products and offerings, writing in a Brocade blog entry, said that the “programs are designed to help make our channel partners that much more profitable.”

In touting Brocade’s efforts to help partners raise their profits, Randall said that the new programs are “a no-brainer you say, sure, but it’s in direct contrast with Cisco, whose VARs have publicly raised concerns about Cisco squeezing more margins from them in both product and services.”