Will Fiorina’s ouster signal more change

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 is that 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 looking at the possibility.

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 a vendor’s Web site for another — should a seller 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 in early February, 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.

In late January, 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 reportedly denied those reports. Fewer than two weeks after the news items hit the stands, however, Fiorina was 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.

Recently, Fiorina came in for a round of brutal press coverage, with both newspapers and industry analysts savaging the 2002 merger that brought HP together with Compaq Computer Corp.

“HP’s…acquisition of Compaq stood as a really extreme makeover whose results were never quite what the patient (HP) or the surgeon (Fiorina) had hoped,” wrote Charles King of Pund-IT Research in a newsletter. “Given the deal’s sheer size and audacity, its essential failure was even more disappointing.”

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 close attention to its servers and storage unit, which was “a significant disappointment last year,” he said.

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.

Rob Enderle, head of the Enderle Group, an IT research firm in San Jose, Calif., has his own opinion of what happened here. He figures HP’s board presented Fiorina with an ultimatum: give up some of your duties to a strong second-in-command, or leave.

But the board didn’t expect Fiorina to take the second option, Enderle said. Now it’s scrambling to find someone to fill her shoes.

It could be a difficult search. “Who, qualified to do this, would take on this kind of challenge?” Enderle said, noting that post merger, HP has had problems like the sagging server and storage unit.

Richard Ptak of Ptak, Noel & Associates, a U.S. IT analysis firm, said he thinks HP will take three to six months to replace Fiorina, and eventually spin off one of its business units — perhaps print and imaging, or PCs and services — to stand alone.

“Aggregating several strug-gling companies has not led to sustainable market-share leadership,” he wrote in a news brief.

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.

On Feb. 16, HP reported its earnings and revenue numbers that surpassed Wall Street expectations. Wall Street had been expecting revenue of just under US$21 billion, according to a survey of analysts by Thomson First Call.

The computer maker’s revenue for the quarter, which ended Jan. 31, was US$21.5 billion, up 10 per cent from the same quarter last year, but profit remained flat. HP reported net earnings of US$943 million for the quarter, up slightly from the US$936 million it reported in 2004.

There is “work to be done to improve our profitability,” said a written statement attributed to Robert Wayman, the company’s chief financial officer, who is also serving as interim CEO.

— With files from IDG News Service

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