HP leveraging Cisco's supply chain issues to recruit channel partners?
Thu, 6/17/10 - 1:05am Add your comment
HP appears to be taking advantage of Cisco's supply chain issues in order to recruit new channel partners.
How so?
Well, it appears HP's supply chain is relatively unaffected when compared to Cisco's widespread component shortages.
However, HP's not seeking to recruit small time Cisco channel partners, HP's targeting the "cream of the crop" of the Cisco channel partner elite. According to Frank Rauch - vice president of HP's networking channel sales, "We want it to be extremely profitable and extremely predictable for the partners that are willing to step up. By the way, we are going to put the bar high and those that are able to reach that bar will benefit."
But according to RBC Capital Markets Managing Director - Mark Sue, HP's recruiting effort might be nothing more than wishful thinking:
"Cisco's differentiated go-to-market strategy with a focus on profitability around services offered by the partners has limited its competitors from gaining traction with its channel partners. Competitor HP's messaging is directed around the hardware as it attempts to
commoditize the space.
"Cisco is reaping the benefits from its investment in its channel partners during the last downturn with 80% of its revenues coming from channel partners. Cisco boasts 60,000 partners worldwide with 12,000 certified partners generating 90% of channel revenues. With 280,000 people selling Cisco gear through the channels, Cisco enjoys a 16:1 multiplier effect on its direct sales force."
Sue continued, "On Cisco's UCS initiative, it took some time to convince partners that were already selling Data Center solutions, to switch to Cisco's UCS. However, with the partners providing the services solution around UCS, the margin profitability was a compelling factor. Now the Company has >800 partners signed up as Cisco data center specialists, far better
than Cisco's expectations. And the cost savings associated with virtualized Data Centers are driving Cisco's success despite the current economic uncertainty."
Sue added, "Despite the macro concerns around Europe, SVP of global channels at Cisco, Keith Goodwin, said the Company is not seeing an impact in Europe. Cisco's channel partners in Europe are still enthusiastic and not seeing an impact either. While Europe is ~22% of Cisco's overall business, countries impacted by the current crisis represent < 4% of Cisco's overall business. If anything, partners are seeing business growing across geographies with the need for increased network bandwidth a key driver."
Sue concluded, "Cisco's stock currently trades at 2.3x our CY11 revenue estimate net cash and 13x our CY11 earnings estimate, which does not reflect options expensing. Our 12-month price target of $33 is 18x our CY11 EPS estimate, which is above the current mean of 13x. Target multiple is closer to 17x blended CY10/CY11 EPS net cash of $4.07/share. We believe CSCO deserves a premium multiple because of its strong cash flow, balance sheet and industry position."
