Carly Fiorina, the woman who executed the largest merger in high-tech history between Hewlett-Packard and Compaq Computer Corp., ended her six-year run at the helm of HP Wednesday over disagreements about its future direction with the company’s board.
Fiorina, 50, said in a public statement
that she and the board “have differences about how to execute HP’s strategy.” Patricia C. Dunn, an HP board member, will take over as chairman, while the company’s CFO, Robert Wayman, will act as CEO on an interim basis.
In a conference call with investors, Dunn said HP’s board isn’t planning any other structural changes while it begins a search for Fiorina’s replacement, which she said would likely be an external candidate.
“The differences really come down to the view that Carly was brought in to catalyze a transformation at HP, she did that in remarkable fashion,” Dunn said. “Looking forward, we think the job is very reliant on hands-on execution and we thought a new set of capabilities is called for.”
Neither Dunn nor Wayman would comment specifically on what kind of capabilities those are, or the differences of opinion between Fiorina and the board. Wayman admitted the board had been disappointed with HP’s performance in the server and storage space last year. A botched SAP implementation had also brought challenges to its supply chain. “Those problems are behind us,” he said. “Now we need to establish a steady and consistent track record.”
The move comes just four days before HP’s annual Americas partners conference opens in Las Vegas.
Fiorina joined HP in July 1999 from Lucent Technologies, where as president the company’s Global Service Provider division she led the company’s US$3 billion IPO, at that time the most successful in U.S. history. In 1998 Fiorina was named as the most powerful woman in American business by Fortune magazine, ahead of the likes of television mogul Oprah Winfrey.
Fiorina brought an unusual mix of education and experience to HP. A Stanford University graduate with a bachelor’s degree in medieval history and philosophy, she taught English in Italy, went back to school to pursue an MBA and then took a job selling long-distance for AT&T. Lucent was an AT&T spin off.
In 2001, as the IT sector endured an industry-wide slump, Fiorina initiated discussions with Compaq to merge in what became a US$18 billion transaction, which was bitterly contested by HP heir Walter Hewlett and some members of the Packard family. Fiorina campaigned hard to persuade customers, analysts and shareholders that the two firms’ desktop lines did not suffer from overlap but could create a stronger adversary for IBM. The first major services win following the Compaq merger came in 2002, when CIBC outsourced significant portions of its IT infrastructure in a $2 billion deal.
Recent reports in the Wall Street Journal and other publications quoted anonymous sources that said HP’s board was encouraging Fiorina to delegate her day-to-day duties to other members of the senior management team. There has also been increased speculation in the press that HP will eventually spin off several of its units, such as its lucrative printer business, but Fiorina has publicly resisted any such move. HP recently integrated its PC and printing divisions.
Dunn did not rule out spinning off parts of HP, but said no changes were planned at the moment.
“The portfolio that has been assembled at HP is unique,” Dunn said. “(It is) a collection of businesses that each has the opportunity and the expectation of performing along with the best in class in their markets for products and services. The view that we see is one that includes driving value between the portfolio businesses.”
Wayman added that managing a portfolio of HP’s complexity demands a versatile leader.
“It requires a little bit of everything,” he said. “We have times where we need to make adjustments with resources and that occasionally means some cost-cutting.”
Dunn said Fiorina’s departure shouldn’t take HP’s enterprise customers off-guard.
“I think these things always seem precipitous when they occur because they’re sudden when the news hits, but the board has been deliberating on company performance and leadership for quite some time,” she said.
Resellers were caught off guard.
“It’s a surprise to me,” said David Ahoot, CEO of Hypertec Group of St. Laurent, Que., a solution provider with annual sales of about $150 million.
“HP is our largest partners,” he said, “and the decisions they make would impact us.”
As a reseller he said he’s always had problems with HP’s strategy of having both direct sales and a channel strategy.
“The question of going direct or not going direct was never clear,” he said. “If they would have said they were in a conflict and would not go direct they would have been in a better position for the channel and the confidence would have been there 100 per cent. Whereas now it’s only 50-50.”
That was echoed by Peter McMahon, vice-president of sales at Protek Systems of London, Ont.
“HP’s had two challenges in the last couple of years,” he said. “One is they had some confusion as to whether they were a direct model or a channel model. While HP was known was one of the most friendly to the channel pre-merger (with Compaq), since the merger it’s tried to dance to two different tunes. I don’t know that they’ve had a lot of success on the direct side, but they’ve definitely strained relationships on the channel side.”
“The other challenge HP has is that our industry as a whole is very confusing to our customers. They are getting fed up with the finger-pointing – ‘It’s the hardware. No it’s the software. No it’s the drivers.’
“HP has the opportunity to present more of a full solution than probably anybody else out there, and yet they’re divided internally into silos.” The imaging, personal computing and storage groups don’t communicate with each other, he said.
“The challenge HP has is that almost literally the left hand doesn’t know what the right hand is doing.”
For example, he said, at Protek’s weekly sales meetings he learns of HP sales specials. “It’s monumental, because every product group has another special going on and sometimes they actually conflict with each other. One product group doesn’t know what the other product group is doing.”
Fiorina’s departure was only a “moderate surprise,” he said.“The performance of HP stock would have a lot of people concerned, because since the merger it’s gone down, although I think the merger itself went pretty well.
“I was surprised at her stepping down. I’m not surprised big changes were to come” at HP.
“It was coming,” Pierre Cayouette, president of PCD Solutions of Montreal, an HP VAR, said of the dismissal.
“If you look at what was supposed to happen [from the merger], promises that were made to investors, and what’s been happening . . . It was only a matter of time before the shareholders won.”
His company focuses on enterprise Unix solutions, so the merger was a disappointment because HP began to concentrate more on commodity servers, he said.
“We were the king of the enterprise before. Now the enterprise was a small part of a huge company.”
In theory, he added, bringing Compaq into HP broadened the company’s product line so it could offer a wide range of solutions to CEOs.
“But definitely in the execution this is not what happened.”
The new HP head should give more room to partners, he added. “Because of Dell a lot more business has been taken direct. I don’t think that’s a good thing. That’s not effective, so you have to play another game.
“Take it direct completely or sell off that [PC] business. You can’t be half pregnant.”
The HP board’s move may have been a reaction to Fiorina’s recent decision to apparently fight pressures to spin off the company’s dazzlingly successful printer business by merging it with the struggling PC business, said Dave MacDonald, president of Softchoice Corp., a $200 million reseller with branches in Canada and the U.S.
It also may have been a reaction to a highly critical feature about the company in a recent issue of Fortune magazine, he added.
Since moving into hardware two years ago HP products have been big sellers, he said, now accounting for $40 million in annual sales or about 40 per cent of hardware revenues.
Like other resellers, MacDonald is critical of HP’s direct sales.
“HP has been somewhat schizophrenic in their channel strategy,” he said. “The strategy has not been clear. She (Fiorina) counted on scale being the thing that would allow her to compete in the PC business, but it’s obvious that just being bigger wasn’t necessarily beneficial.”
“They need to have a strategy that allows them to compete with lower-cost providers like Dell, but leverages the advantages of the channel,” he said.
As for breaking up the company, he disagrees with suggestions the printer division should be split from the rest of the company. However, he questions the need for HP’s recent expansion into consumer electronics.
With files from Howard Solomon and Jeff Mackie.