HP Carly Fiorina, GOP potential cadidate?
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Posted on Sun, Sep. 05, 2004Taking stock of Fiorina SPOTTY RESULTS STIR FRESH DOUBTS OVER STRATEGY, MERGER By Dean Takahashi and Therese Poletti Mercury News On a summer day five years ago, Carly Fiorina took the helm at Hewlett-Packard, the first outsider to run the pioneering Silicon Valley firm. HP's board handpicked the charismatic marketing executive to revitalize a company that had become a lumbering tech dinosaur, befuddled by the new Internet age.Since then, Fiorina has made vast changes at HP, most audaciously by buying Compaq Computer for $19 billion after a bare-knuckled brawl with HP's founding families. She has added a bit of Hollywood glamour to the stodgy computer and printer giant, boosting sales and profits despite a vicious tech downturn. And she shaved $3.5 billion in costs after the merger -- far more than her skeptics expected.But as the third anniversary of the announcement of the merger with Compaq arrives this weekend, it's also clear that Fiorina has made a number of missteps. She has hurt her credibility with investors by failing to deliver consistent results, most recently with a poor earnings report last month. HP's stock, trading at a split-adjusted $44.48 when Fiorina became CEO in July 1999, is down 60 percent since then, underperforming some rivals.Fiorina's no-nonsense style, her toughening of the people-oriented ``HP Way'' culture and her workforce shake-ups that resulted in a net reduction of 8,000 jobs have turned the Palo Alto company into a place that can no longer make it onto Fortune magazine's ``Best Places to Work'' list. And constant change and management turnover appear to have taken a toll on HP's dominance in the data-storage market, where it has ceded the No. 1 spot to Massachusetts-based EMC.Most important, Fiorina's strategic vision -- to sell all things to all customers, from digital cameras to data-management systems -- is coming under fire as a risky gamble.Five years into Fiorina's tenure at HP, it remains unclear whether she will accomplish what she was brought in to do: Restore HP to the ranks of the world's leaders in innovation and financial performance.Some on Wall Street are starting to lose patience. ``The stock is worth a lot more than the current share price with the right leadership and strategy. Something needs to be done,'' said Kevin Rendino, a fund manager at Merrill Lynch Asset Management, which owns 6.2 million HP shares.Wall Street surpriseThe pressure on Fiorina, who turns 50 Monday, grew last month when she stunned Wall Street with news of a huge third-quarter earnings shortfall.In a 5 a.m. conference call, Fiorina told analysts that HP was $400 million short on revenues and $275 million short on earnings, mainly because of internal problems in its corporate computing division. She tried to mollify the shocked analysts. ``I certainly understand your frustration,'' said Fiorina, who promptly fired three top executives.But the problems revived old questions about what kind of company HP really is.HP's great strength, technologically and financially, has long been its printer and ink business. But when she came on board, Fiorina argued that HP needed to get big to compete in a vast array of computer-related businesses if it was to succeed in the digital age.She wants HP to be a consumer-electronics company, pitching digital cameras to families through glossy ``Shrek'' promotions. She wants it to be a computer company, selling low-profit PCs and servers against super-efficient Dell.And she wants it to be a ``solutions'' company, competing with IBM to offer the best package of consulting services and high-end computers to the Fortune 500.Fiorina declined to be interviewed for this article. But her defenders say the execution problems from last quarter won't be repeated.Moreover, HP executives insist that critics are simply wrong. After all, nobody expected the company to pull off the merger, preserve its No. 1 market share in printers, compete head-to-head with Dell in PCs and challenge IBM in services. And the company continues to innovate, winning about 11 patents a day.``It is very hard to find anything to suggest the merger was not a good idea,'' said Ann Livermore, executive vice president of HP's technology-solutions group.Analysts believe investors will probably give Fiorina a few more quarters to turn things around.``I think it's early to think about dramatic changes at HP,'' said Toni Sacconaghi, an analyst at Sanford Bernstein & Co. in New York.Most visible representativeFrom the start, Fiorina shook up HP. She became its most visible representative, bringing her marketing panache to a company known more for shy, retiring engineers like co-founder Bill Hewlett.Fiorina re-centralized a company split into 83 different fiefdoms, enabling HP to take advantage of its buying power and its ability to offer customers discounted bundles of products and services that rivals couldn't match.Coming in fresh to the computer industry from Lucent, a telecommunications-equipment maker, she saw with clearer eyes than some of her fellow CEOs that the industry was selling more mass-market products, even in the higher-end computer server business. She predicted consolidation and standardization.Fiorina realized that HP as an organization had become complacent and sluggish, thanks in part to its culture, where managers would dicker for hours in meetings discussing problems without taking decisive action. She cracked down on employee underperformance and took away the feeling of lifetime entitlement that many HPers had about their jobs.She identified IBM as HP's biggest rival and studied its triumphs. One of her early moves was an unsuccessful bid to acquire PricewaterhouseCoopers's consulting business in an effort to imitate IBM's high-profit business of running its customers' computer operations.Then Compaq came calling. HP's biggest losses had come from its personal and corporate computer business. A merger with Compaq would give HP the same purchasing power as Dell, allowing it to reduce costs by buying cheaper parts.Fiorina has proved that combined, the companies make a formidable competitor. HP also has boosted its computer-services business, snaring services contracts from IBM and holding its own against Dell in PCs.``Our strategy is right,'' said Livermore, the HP executive. ``Our product portfolio is strong. Our road map is strong.''Brash movesBut in the process, the brash moves Fiorina made have hurt morale among the company's rank-and-file workforce, known in HP-speak as ``individual contributors.''Even some members of Fiorina's executive team are reconsidering their loyalty in the wake of the firings of three top executives last month, according to current and former HP officials.``We have morale problems,'' said one current employee who asked not to be named. ``We're concerned this is going to all roll downhill.''Livermore, a contender in 1999 for the CEO job that Fiorina received, acknowledged that overall morale isn't as good as management would like. But she disputed the notion that Fiorina's top lieutenants are unhappy. ``From our perspective, the executive council inside HP trusts Carly's judgment and the judgment of the board of directors,'' she said.Fiorina's critics have become more bold since HP reported Aug. 12 that it had missed its quarterly earnings. The unexpected news has shaken Fiorina's support among executives, employees, investors, and customers.They say Fiorina has a history of producing inconsistent results, often over-promising and under-delivering.HP's biggest rival in PCs, Dell of Round Rock, Texas, has met Wall Street's expectations and its own promises for 14 quarters in a row.HP has missed earnings targets several times under Fiorina. In November 2000, before the Compaq merger, HP warned that it had missed earnings estimates by 10 percent.A year ago, the same thing happened. Fiorina issued a terse warning to all employees that management would be held accountable for poor performance. HP managed to turn itself around in subsequent quarters. Then came the Aug. 12 miss.``As an investor, you gave her a grace period after the merger. Most CEOs in this position would be under a great deal of pressure,'' said Megan Graham-Hackett, an analyst at Standard & Poor's, who does not own HP stock and whose company has done investment banking work with HP.`Consistency helps'Livermore acknowledged that HP's misfires had hurt its stock price. ``Consistency helps. The fact we had a bad quarter is one thing the analysts care about.''Still, she said, ``it takes investors a while to completely understand the portfolio and reasons why HP is a good investment. We are a more complex company for investors to understand.''Indeed, some on Wall Street argue that HP needs to be more focused. Steven Milunovich, an influential analyst for Merrill Lynch in New York, has repeatedly called for Fiorina to hire a chief operating officer and boost HP's share price by spinning off the company's profitable printer division.HP has rejected those suggestions, stressing that last quarter's problems were an aberration.But the company faces longer-term problems in the area that was the source of much of its recent trouble, the enterprise server and storage division, which sells computers and data-storage equipment to companies and large organizations.As a result of the merger with Compaq, HP has inherited five different microprocessor designs. For several years, HP has been trying to move customers over to a single system running Intel's expensive Itanium microprocessor, a strategy that began long before Fiorina's tenure.But analysts say fewer customers than expected have made the big investment it takes to shift to Itanium-based servers, which require new software to achieve optimum performance. A survey of 7,000 customers released in August by HP user group Interex said half of all those customers have no plans to move to Itanium.Livermore, the HP executive in charge of the enterprise server division, contends that surveys show its customer satisfaction keeps growing.But not all customers are prepared to wait for HP to resolve its execution problems. Bryce Johnson, general manager for information technology for New Zealand's Quotable Value, said his company bought servers from HP for the past 14 years but shifted to IBM because HP was lacking in basic service and maintenance.``The HP-Compaq merger still seems to have the company totally distracted, and they are more focused on looking inwards rather than resolving customer issues,'' Johnson said.Despite HP's recent missteps and longer-term challenges, there are no signs so far that the company's board of directors is getting antsy over Fiorina's performance.Said Livermore: ``We have accomplished many things our critics said we could never do and accomplished many things that many people didn't think were possible.''Contact Dean Takahashi at firstname.lastname@example.org or (408) 920-5739. Contact Therese Poletti at email@example.com or (415) 477-2510.
GOP insiders see HP's CEO as potential candidate FIORINA SAYS LITTLE, FOCUSES ON MAIN JOB By Dean Takahashi and Therese Poletti Mercury News When Carly Fiorina leaves Hewlett-Packard, she could have another career -- in politics.Local political observers say Fiorina, a Republican, would be a good candidate for either an elected or appointed office.``I know she is a very attractive personality,'' said Duf Sundheim, the chairman of the California Republican Party. ``I know there are those who would love to see her run.''Fiorina has kept any such plans close to the vest. When asked a year ago if she would consider a career in politics, she coyly answered that she ``never thinks about the next job'' so that she can stay focused on the current one.Fiorina and her husband, Frank, have made at least $36,000 in political donations over the past five years, including $6,000 to George W. Bush, according to the Center for Responsive Politics. That's relatively modest compared with other Silicon Valley heavyweights, such as Cisco Systems Chief Executive John Chambers.A person familiar with Fiorina's intentions said she has long harbored a desire to get into politics, but doesn't want to reveal her aspirations because she doesn't want to be perceived as less than dedicated to her job at HP.Republican insiders said Fiorina, whom they described as a moderate and pro-choice, is a rare breed, and she could have a bright future in politics.Fiorina introduced now-Gov. Arnold Schwarzenegger at a fundraising event in San Francisco during his campaign to recall former California Gov. Gray Davis.HP spokeswoman Monica Sarkar said Fiorina's involvement with the Schwarzenegger campaign was related to HP business interests, such as the company's efforts to limit the scope of a bill to impose fees on computers to fund electronic recycling. She also said Fiorina realizes good government relations are good for HP's business.Fiorina was in New York last week but did not go to the Republican convention, said Sarkar.Mercury News Staff Writer Jim Puzzanghera contributed to this report.