Hewlett-Packard Co. vowed yesterday to maintain Carly Fiorina's controversial strategy of building a global, end-to-end technology powerhouse competing on sheer size, even as the company dumped its high-profile chairman and chief executive officer.
Resisting pressure from many institutional investors and financial analysts, and moving quickly to reassure large corporate customers that business continues as usual, company officials said they had no plans to break up the tech giant.
Hewlett-Packard's stunted profit stems from Ms. Fiorina's failure to execute plans effectively rather than from any structural flaws within the company, officials told analysts on a conference call.
“The board is firmly committed to the business strategy in place and there are no changes in the portfolio expected,” said Patricia Dunn, the newly appointed chairwoman. “The portfolio the company has assembled is a unique collection of businesses [and] each has an opportunity and expectation of performing along with the best in class in their markets.”
Chief financial officer Robert Wayman, who was named interim CEO and appointed to the board of directors, reiterated the point, saying: “There is no debate within the company about the strategy.”
The dismissal Tuesday night of Ms. Fiorina, the first woman to lead a Dow 30 company and one of the most powerful executives in the United States, followed weeks of discussions by board members unhappy with her performance. Those deliberations included exploratory talks on the pros and cons of breaking up the company.
She orchestrated the largest takeover in the computer industry's history, paying $19-billion (U.S.) for Compaq Computer in 2002.
Ms. Fiorina cut operating expenses by more than $3-billion and won a highly public and acrimonious showdown over the company's future with one of the founding families of Hewlett-Packard.
But she has also watched the market valuation of the company tumble more than 50 per cent over that period and she failed to drive up profit even as her biggest competitors boosted their own earnings. In her first year on the job, the company posted profit of $3.49-billion on sales of $42.4-billion. Last fiscal year, Hewlett-Packard, based in Palo Alto, Calif., reported a profit of $3.50-billion on revenue of $79.9-billion.
Many analysts and investors faulted her for buying Compaq, claiming the deal ensconced HP in the low-margin, rapidly commoditizing market of personal computers.
The wisdom of the decision has been thrown into question again in the past year. First, Dell Inc. took the No. 1 spot in the PC market from HP last year, according to the market research firm IDC.
Then International Business Machines Corp. announced in December that it will sell its PC business to Lenovo Group Ltd. for $1.8-billion and a stake in the Chinese company so it can focus on more profitable businesses, such as consulting.
In an effort to revitalize its own PC business, HP last month combined its PC and printer units into one and put it under the leadership of executive vice-president Vyomesh Joshi.
Ms. Fiorina repeatedly defended her purchase of Compaq and the move deeper into consumer products as a way to differentiate Hewlett-Packard and give it dominance in the technology supply chain.
She argued that as information becomes both digital and mobile, to be really useful it must also connect in simple and efficient ways across seamless networks, from a $100 digital camera to a multimillion-dollar back-end server computer.
Consumer, business and public markets will interact more and more in this age of technology, and that's why Hewlett-Packard has to play in all of them, she said in a December speech to business customers in San Francisco.
In a statement released yesterday, Ms. Fiorina said: “While I regret the board and I have differences about how to execute HP's strategy, I respect their decision. HP is a great company and I wish all the people of HP much success in the future.”
Ms. Dunn said the board had been unhappy with Ms. Fiorina's performance for some time and had held numerous meetings that included external advisers to decide what to do.
Company officials wouldn't discuss the characteristics they are seeking in the next CEO. While they conceded that they will look internally, the expectation is that someone from outside HP will be hired.
Hewlett-Packard was built on an egalitarian, team-based culture dubbed “the HP way,” where the star was the company itself, not select executives. The culture survived from when Stanford University classmates Bill Hewlett and Dave Packard founded the firm in a garage in 1939, through the booming 1990s and the leadership of Ms. Fiorina's predecessor, 33-year veteran Lew Platt. “With Carly at the helm, she was a superstar CEO, and HP had gone away from that philosophy,” said Jay Rosenzweig, managing director of the Toronto-based executive search firm that bears his name. “Perhaps it's time for HP to go back to the culture that the founders intended.”
He said not only would the company be wise to look for a lower-profile leader, but it should broaden its search far beyond the ranks of its technology competitors, such as Dell and IBM. “It's not the sector experience that's important, it's about leadership first and foremost and having the strategic vision to take a company forward.”
Richard Gardner, an analyst with Citigroup Smith Barney, said Hewlett-Packard is making the right decision by not spinning off certain units. The PC division would have a tougher time competing against Dell without the benefits of subsidies from the printer division, which provides 76 per cent of HP's operating profit from just 30 per cent of total sales, he said.
Nevertheless, he warned that Hewlett-Packard continues to lose market share across virtually all of its consumer product lines to Dell, Apple Computer Corp., Gateway Inc. and Lexmark International Inc.
Shares of Hewlett-Packard rose $1.39 or 6.9 per cent to close at $21.53 yesterday on the New York Stock Exchange.
HP's ride down
During Carly Fiorina's five-year reign as Hewlett-Packard CEO, the firm's shares fell 55 per cent, the third-largest decline among Dow-listed companies. In 1999, when she was hired, HP reported a profit of $3.49-billion (U.S.). In 2004, HP's profit was $3.5-billion.
July 19, 1999: HP names Ms. Fiorina as chief executive officer and becomes one of the first major U.S. corporations to be headed by a woman. She became chairwoman the following year.
Sept. 3, 2001: HP's decision to buy Compaq for about $24-billion is announced. Nov. 6, 2001: Members of co-founder William Hewlett's family and a related foundation say they will vote against the Compaq purchase.
March 6, 2002: The Federal Trade Commission clears the proposed acquisition, saying there is no reason to believe that the transaction would limit competition in any market.
May 3, 2002: HP completes the purchase for $18.9-billion in stock.
Feb. 27, 2003: Documents filed with the SEC show that Ms. Fiorina was paid a $2.93-million bonus after leading the effort to buy and integrate Compaq.
Sept. 29, 2003: Ms. Fiorina is the most powerful woman in business for the sixth consecutive year, according to Fortune Magazine's annual ranking of the Top 50.
Oct. 9, 2003: Ms. Fiorina is appointed to the transition team for California's Governor-elect Arnold Schwarzenegger.
Jan. 23, 2004: HP reduces Ms. Fiorina's pay by 38 per cent in the fiscal year following the company's purchase of Compaq.
Feb. 9, 2005: Ms. Fiorina resigns in a dispute with HP's board.
Stock closes yesterday at $21.53, up $1.39