HP Networking Interview

In conjunction with the press release on HP Networking’s expansion of its trade-in program, MAX-IT managed to grab a hold of Raymond Ooi, the Country Manager, HP Networking (Malaysia) to ask him more about the progress of HP’s Networking division in Malaysia and to find out more about this trade-in promotion.

Simon Tan: Could you tell us a bit more about the current trade-in program?

Raymond Ooi: Currently, many enterprise users have a single complex network which is rapidly aging. Typically, the ROI for networking equipment is around 5-7 years and many of them are looking to refresh their equipment by upgrading or migrating their networks to something newer. So HP Networking is running this program to raise awareness about our products as well as assist customers who want to upgrade their networks.

ST: How is HP doing in the Networking arena?

RO: HP gained 2.5 percentage points in worldwide sales for Layer 2 and 3 switches. These are commonly used by organisations with large offices or many off-site branches and offices, e.g. banks. In addition, we also increased our worldwide market share in routers by 2.5 percent and WLAN (wireless local area network) equipment by 2.2 percent. So this means that HP Networking is doing very well thanks to its complete range of end-to-end network solutions for the market.

In terms of managed switches, we’re number one in the market with a 34 percent market share and a 13 percentage point lead over the nearest competitor. Overall, HP Networking is in the number 2 position worldwide in the switches and router market. We have tremendous momentum, with a 6 percent year-on-year gain in the Asia Pacific region. And we have been outperforming the market over the past two years.

ST: Can you explain how this trade-in program works?

RO: This program was initiated to benefit both our customers and channel partners. As I mentioned earlier, it’s time for many enterprise customers to upgrade their equipment. They can be using any brand of equipment: Cicso, Nortel, Juniper, etc. Some of them want to do this as Capital Expenditure (CAPEX) or Operational Expenditure (OPEX); it really doesn’t matter. They can choose to replace or even slowly migrate their infrastructure. HP’s products are based on open standards so they can co-exist with other vendors’ devices. The channel partners will assist in drawing up a proper migration plan in order to avoid any downtime.

So, the customer can choose from a wide range of say, HP’s switches to replace their existing equipment. We don’t really care what brand of equipment they’re using; we can work out a trade-in value based on a per-port or per-chassis basis to be given as a cash incentive. Most of the time, the customer would convert that into a discount for the new equipment. They can thus get extra value from their old equipment even though some of these have already been paid for and written off.

ST: How does this program benefit your channel partner?

RO: Some of these partners are already selling other brands but with the trade-in plus our wide range of product offerings, they can go to their existing customer base or even new ones with an even better value proposition. Secondly, they can offer a longer migration plan for their own customers, even those who are already using HP’s products.

In addition, as these partners usually come up with the migration plans, HP will provide fast track certification programs, i.e. ExpertONE to help them become experts in designing and deploying HP’s networking products. And by the way, this trade-in program is open to HP’s authorised resellers or certified partners. If customers feel more comfortable talking direct to HP, we will entertain that also but a certified partner will be appointed to be their service provider. HP believes in supporting its partners; in fact, as high as 80% of our business is through them so there are mutual benefits.

ST: Is this the first time HP is running a program like this?

RO: Actually, HP has been running the Catalyst for Change Trade-in Program for some time. In the Asia-Pacific region, Malaysia has been running this since July 2011. The same program has been running in the United States since December last year. We expanded it to more regions after seeing its success there. For the time being, this program will run until the end of October 2011 in Malaysia.

ST: Any chance of this program being extended locally?

RO: It depends on the results. Also, next year is approaching and we might be offering a new program so we’ll see how it goes.

ST: Moving on, how often is it that a customer upgrades their network infrastructure? Don’t they usually do so when they upgrade their servers?

RO: Yes, most customers often upgrade their networks when they buy new servers, but server technology changes more quickly and equipment becomes obsolete faster. When it comes to networks, the standard life cycle is usually around four to five years. Customers usually finance their network equipment for three years and then continue using it for another two years or so. Generally, the core switches will normally be used for more than five years while the edge switches (e.g. those used in remote offices) often gets replaced earlier. Currently, many customers are still using 10/100Base-T switches and these will be replaced with Gigabit ones very soon.

ST: Do you get customers who say “if it’s not broken, don’t fix it”?

RO: Yes, but there are probably three different factors for changing equipment. Firstly, their existing products are no longer being sold or their support contracts have expired. Secondly, they have new requirements in terms of new functions and features which their old equipment cannot offer. For example, they need faster bandwidth and most PCs now have Gigabit Ethernet so they can benefit by upgrading their old switches. The last factor is equipment failure; finding the same product might be difficult or expensive so they will migrate or upgrade.

ST: Is IPv6 a good reason or excuse to upgrade networking equipment?

RO: Actually yes. I cannot disclose this client, but suffice to say we were asked to do a study on the organisation’s IPv6 readiness. They didn’t know whether their existing infrastructure (switches, clients, servers, etc.) were compatible. Frankly, IPv6 isn’t as urgent as the Y2K bug. In addition, most customers will ask their equipment vendor for software updates to support IPv6 rather than replace their hardware.

ST: So does HP also offer financing to customers who need it?

RO: Yes, HP does have a financing option through HP Capital. But some customers prefer to pay for everything upfront, especially with cash from the trade-in promotion. That’s because they want to see the ROI from their old equipment which have already been paid for.

ST: Isn’t this trade-in program purely a marketing strategy? The equipment that customers traded in basically can’t be used.

RO: You’re right. The stuff we get is disposed off, probably in a junkyard somewhere. Possibly recycled if that’s an option.

ST: So, final question: are you satisfied with the response to this program from Malaysian customers?

RO: There hasn’t been a sudden, sharp increase in sales. But it has picked up momentum as more companies are becoming aware of the program. Last month we saw a lot of interest from manufacturers based in Penang. Generally, things are looking up but we do realise that upgrading network equipment takes time. Some customers have also enquired if this program will be available after October. We cannot say for certain, but we will definitely listen to feedback from customers. The most important thing is that customers realise that there’s no longer a price premium attached to our products, unlike some other vendors who also offer similar trade-in programs but attach a high premium.