Brace for change as Fiorina leaves HP: analysts

A big change at Hewlett-Packard Co.’s (HP)executive offices in Palo Alto, Calif. could ripple through businesses located in Canada, according to one industry observer.

Roberta Fox, senior partner at Fox Group Consulting, an IT advisory firm in Markham, Ont., wondered if HP might change the way it works now that Carly Fiorina no longer occupies the IT infrastructure vendor’s CEO suite.

Fox’s main concern: HP might commit to selling by market segments alone, such as consumer, SMB and enterprise. “The question will be, are they going to fragment the leadership by division?” she said, noting that other IT vendors have been at it.

But this segment-only sales method isn’t necessarily good for business equipment-buyers, according to Fox. They might have to shop different channels — say an office supplies store for one product and HP’s Web site for another — should a vendor split along those lines. “Companies don’t think that way,” Fox said.

While it’s no bombshell that HP asked its chairman-CEO to step down yesterday, it is surprising to see how quickly the hatchet can fall, said Alan Freedman, an IT analyst at IDC Canada Ltd. in Toronto.

He noted that the writing was on the wall for Fiorina. The firm asked her to step down Feb. 8, and she agreed to do so, said HP.

“I don’t think it comes as a complete shock,” Freedman said of the CEO’s departure, “There have been some rumblings that the board wasn’t happy.”

Still, Freedman noted that the time between those rumblings and Fiorina’s leaving the company was awfully short.

Late last month news reports said HP’s board of directors was considering breaking up Fiorina’s responsibilities and handing some of those duties to other executives. HP later denied those reports. Fewer than two weeks after the news items hit the stands, however, Fiorina is no longer with the company.

In a conference call with the media on Feb. 9, Patricia Dunn, named board chair in Fiorina’s absence, said HP worked with outside consultants and held internal deliberations before deciding to ask Fiorina to leave.

“It is not a sudden decision,” she said, adding later that news reports about HP and Fiorina were “coincidental,” and didn’t impact HP’s decision.

Recently, Fiorina came in for a round of brutal press coverage, with both Business Week and The Wall Street Journal savaging the 2002 merger that brought HP together with Compaq Computer Corp.

Last month, HP combined its printer business, a lucrative division often referred to as the company’s crown jewels, with its ailing PC group, in an effort to improve profitability in its PC and server lines. The integration quashed rumours that HP was considering splitting the company along product divisions.

Asked what event specifically precipitated HP’s request that Fiorina vacate her position, Dunn said “there were no improprieties involved,” and “there was no direct connection between the third quarter and this decision.”

In the third quarter of 2004 HP’s Enterprise Servers and Storage division posted a US$208 million operating loss. HP blamed a new supply-chain management system that wasn’t working as well as planned and “overly aggressive discounting” of HP products in Europe, among other things.

According to Robert Wayman, HP’s chief financial officer now named the firm’s interim CEO, HP plans to leverage its broad portfolio for future success, and pay particular attention to its servers and storage unit, which was “a significant disappointment last year,” he said. “We have put those particular problems behind us.”

In a statement, Fiorina hinted at friction between herself and the board. “While I regret the board and I have differences about how to execute HP’s strategy, I respect their decision,” she said.

Dunn said the decision was “not based on strategic differences” between Fiorina and the board.

While HP must address its storage and server division, it should also scrutinize the PC unit, Freedman suggested. HP’s revenues from that side of the house have been healthy lately, but its margins are not as strong as those of the PC market gorilla, Dell Inc.

“The challenge for HP is, can they do it profitably?” Freedman said, adding that although HP might have considered taking the direct-to-buyer sales route that Dell employs, “I don’t think that’s the answer….They need to ensure the channels they have engaged are the correct ones,” and ensure production is as efficient as possible. That’s the path to better margins, he said.

“There’s probably some reorganization that can take place” at HP for the company to achieve its margin goals, Freedman said.

— With files from IDG News Service

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