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HP Analysis: Carly Fiorina Facing "A Skeptical Business Press"

The Challenge: How Does a Company Succeed in Enterprise IT, Personal Computing, Peripherals, and New Technologies Simultaneously

SYS-CON Media West Coast Bureau Chief Roger Strukhoff writes: If you want a friend in Washington, get a dog," the saying goes. The same holds true for most anyone in a public light, including CEOs of very large computer companies. The latest CEO being dogged by criticism is Carly Fiorina of HP, who is facing "a skeptical business press" and "concerns over (the company's) ability to compete in the PC market," according to a report by Benjamin Pimentel in the San Francisco Chronicle (www.sfchronicle.com).

The recent HP management re-org prompted the latest concerns over Fiorina and her performance, particularly in that this re-org slammed the company's underperforming PC business into its perenially successful printer division, a move that could, as the thinking goes, drag down the entire combined division.

No Market Synergy

A quick comparison of marketshare numbers from 2000 vs. 2004 reveals some unfavorable information from HP's perspective. Third-quarter figures from IDC in the year 2000 (the last decent year for the entire IT business) showed Compaq leading the parade with a 13.1 percent market share, followed by Dell at 11.5 percent, HP at 7.8 percent, IBM at 7.4 percent, and Fujistu Siemens with 5 percent. HP was the hot company back then, growing 46.8 percent from year to year. Thus, HP and Compaq owned a combined 20.9 percent of the world market.

Run the tape forward to 2004 (and please run it quickly so no one has to see 2001-2003 all over again), and you'll find Dell with worldwide leadership with 17.9% of the market. HP is in second place with 15.8%, according to IDC. This in a growing market that expanded by almost 15% in 2004. (Research from Gartner for 2004 showed a similar pattern with Dell in first at 16.4 percent and HP second at 14.6 percent.)

Thus, in the four-year period Dell moved from 11.5 to 17.9 percent of the world market, while HP and Compaq combined dropped from 20.9 to 15.8 percent. With each tenth of a percent worth several tens of millions of dollars in revenues, this change is dramatic and stark. HP and Compaq had collectively almost doubled Dell in 2000, yet now sits firmly in second place as a combined entity.

IDC's 2004 figures also show IBM in third at 5.9%, and Fujitsu Siemens and Acer rounding out the top five vendors.

Beneath the Numbers

The ongoing concern about HP, of course, centers around the question of whether its controversial merger with Compaq was a good idea. The merger was a fundamental test of wills between Fiorina's vision of a new HP and an old guard epitomized by dissident shareholder and founding family member Walter Hewlett. Given Fiorina's penchant for sweeping, less-than-technical pronouncements and cultivation of a showbiz-type image for herself and her new company, the merger controversy devolved into some nasty personal attacks from all parties involved.

Lost in this process was whether or not the merger truly did make business sense. Could two goliaths, separate by 2,000 miles between respective headquarters and a similar gulf in corporate culture, combine to be the most powerful player in all of IT? Compaq had already found little success in a mega-merger of its own, having put DEC out of its misery in the late 90s as a way to move further up the IT food chain in the enterprise computing market. Its takeover by HP represented a second step upwards and eliminated it as a competitor to HP's personal computing business.

Analyzing HP is a complex task, and indeed, one facet of today's Chronicle report covered the question of whether HP was trying to do too much, was spread too thin. How does a company succeed in enterprise IT, personal computing, peripherals, and new technologies simultaneously? Is it possible to do so? Would it be a good thing for HP to do so?

When one thinks of the resentment against IBM in the 60s, which led to a protracted federal lawsuit, and against Microsoft in the 80s and 90s, which led to a less protracted lawsuit, how is it logical to hammer HP for not being dominant in everything it does? Why should the CEO of a company whose profit rose 38 percent to $3.5 billion in its most recent fiscal year be characterized as "under fire" or "in trouble?"

Marketing Moving Forward

One concern expressed by many analysts, including this observer, during the HP/Compaq merger was how Fiorina et al planned to combine and differentiate its product lines, particularly in the PC space. Compaq had wanted to be a big enterprise IT player for many years, since its original Tower systems in the 90s. It then acquired Tandem and DEC in short order, striving to respond to opportunities it saw with major business clients.

Compaq built its reputation on being a sort of gold-standard in the personal computing business, from its original "portable" and desktop computers (which had a hotter chip and cooler looks than the IBM PC), through its entire product line as the personal computer market grew. It surely hoped to maintain that standard throughout the enterprise.

HP meanwhile, built a reputation over the decades for top-notch, if not inexpensive, instruments and computing systems. The merger of the two companies thus brought together two of the most highly regarded product lines in the industry. How was HP going to differentiate them? Would the Compaq brand simply disappear? Would a "Ford/Mercury," "Toyota/Lexus," or GM-style differentiation occur?

Here are key marketing sell points from HP's Web site:

  • About HP desktop systems: "Versatile technology you need to communicate, create and enjoy more"
  • About Compaq desktop systems: "Smart, powerful computers delivering the most for your money. Aggressive designs and an attitude to match."
  • For portable systems, the site states that HP "notebooks help you discover, create and enjoy multimedia experiences at work and play." Compaq notebooks, on the other hand, have "advanced technology and great value to enhance your productivity."

Is There a Problem Here, Officer?

OK, the HP systems are skewed more toward multimedia. And the site shows that the Compaq systems are very slightly more inexpensive. But what is the big difference between HP and Compaq systems? How does one develop fierce brand loyalty (the kind nurtured by the hard-edge Dell marketing machine) with this sort of weak differentiation and weaker marketing copy?

So herein may lie the problem. Today's HP/Compaq line is too similar and marketed nebulously. So constrained, can it ever regain the market leadership it collectively had before the merger? Does it matter if it ever does? Was Carly Fiorina's big adventure in acquiring Compaq a mistake, and more important, was the HP board's big adventure in hiring Fiorina a mistake? Does she take an inordinate amount of grief because she's a woman? Or is it flawed vision on her part that is solely responsible for criticism directed at her? Should she get a dog if she doesn't already have one?

More Stories By Roger Strukhoff

Roger Strukhoff is Executive Director of the Tau Institute for Global ICT Studies, (@TauDir), with offices in Illinois and Manila. He is also a writer & editor for SYS-CON Media. He writes for Cloud Computing Journal & Computerworld Philippines. He is Conference Chair of WebRTC Summit and Things Expo. He has a BA from Knox College, Certificate in Tech Writing from UC-Berkeley, and MBA studies at CSU-East Bay. He serves on the board of the Campbell Center for Historic Preservation Studies, and has served as Director, U.S. Coast Guard Aux Int'l Affairs.

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Most Recent Comments
Woody 02/09/05 08:36:25 AM EST

"Ding dong the witch is dead, the wicked old witch...."
Carly was officially fired by the Board of Directors and it was annouced today 02/09/2005. So I guess she is now "OLD" news.....

plusaf 02/09/05 02:04:17 AM EST

Amen, Woody... ///I am just amazed at the people who actually believe the hype about Carly being such a great leader. From what I have witnessed she is more of a show piece and not a real leader. Sometimes I wonder if the BOD brought her in just to give a new face to HP. People use to say that HP wasn't keeping up with the times and was becoming old. What a price to pay for Corporate face-lift !!!!///

she's a great speaker, wonderful presenter, and lousy CEO/COO. put her on the podium for your company [please!], but don't ever let her have a hand in decision-making or, god forbid, anything to do with motivating employees to make a company more successful.

"growth through downsizing" is my take on her...
maybe i should change that to "growth through attrition"?

+af

WWJ 02/08/05 11:33:15 PM EST

Carly is running HP into the ground. Who needs to worry about Dell. She bought Compaq, and now we regret it. Face it HP she is no good!

BrookMaster 01/31/05 05:44:31 PM EST

Does anybody have the full Fortune article availabe for download ?

plusaf 01/30/05 06:56:27 PM EST

re: "quincentvg commented on 28 January 2005:"

amen! Ann's Services group has no idea how to create or keep business. and there are lots of bright people still at hp [and a lot who are no longer at hp] who could still / could have explained it to her, if there were anyone there who could listen. from the top down, there are not, and that's the real shame, imnsho... :)
+af

J 01/30/05 10:32:44 AM EST

An earlier post read "HP has grown better than Dell using GAAP numbers, and better than IBM using any type of numbers."

Sales or other accounting numbers are however irrelevant. What really matters is value to shareholders (which is determined by the market's perception of future profit performance). One can buy Sales by acquiring companies (for example Compaq), however to create shareholder value one needs to create profits.

So let's take a look at HP's share value performance relative to IBM and the Dow:
Jan 2000 to Jan 2005: HP -60%, IBM -15%, Dow -5%
Jan 2003 to Jan 2005: HP +5%, IBM +20%, Dow +30%

Clearly if HP was told that the above would be the future they would not have hired Fiorina. By this objective standard she has clearly failed in her job.

Woody 01/29/05 01:13:13 AM EST

I can't speak to the PC or Printer side of HP, but I can speak to the medium to large server business. Any company that lives by a sales motto of "We don't have to retain customers, they'll be back in the future" is not going to do very well. Our company and others have brought many ready-made sales that were going to be quite profitable for both HP and us, only to have the HP managment tell the sales person to either take the sale "in-house" or up the margin. In both cases the sale usually ended up going to another company. When we took this up with "upper managment" (i.e. Senior VP) at a hardware conference the above quote was his final take on the whole affair. When customers for large machines go to another company and begin to grow a system on that hardware they are very unlikely to ever change horses in the future, particularly if large sums of money are invested in software development.

I have to admit I found it funny when Compaq and HP merged, Compaq was already struggling and failing miserbly, HP was doing well and only needed some minor adjustments to do better. The two merge and everyone expects it to be phenominal. Are you kidding? With all the products they had in common and no desire to bite the bullet, how were they going to generate enough revenue to maintain concurrent product lines. Were people loyal to the Journada going to buy the IPAQ if they hadn't done so before? Were companies who purchased DEC going to suddenly change over to HP-UX? At the same time how were you going to draw new customers to any of these product lines if they were identical to another of you lines?

I am just amazed at the people who actually believe the hype about Carly being such a great leader. From what I have witnessed she is more of a show piece and not a real leader. Sometimes I wonder if the BOD brought her in just to give a new face to HP. People use to say that HP wasn't keeping up with the times and was becoming old. What a price to pay for Corporate face-lift !!!!

quincentvg 01/28/05 01:39:02 AM EST

HP still has a great set of smart people, and great technology and supply chain assets. The Enterprise Direct selling organization has FINALLY, with the departure of Peter Blackmore, embraced the urgent need perform more effectively (by selling the value, not just the Intel-based, portfolio.) The pure tragedy in all this is that these get better processes could have started a year earlier. Does it take a bad quarter to have the excuse to fire an executive? I thought we were all employed "at will." Ooops, that's just the peons. The Carly's and EVP's of HP have contracts and even if they are fired make out like bandits.

The issues in HP are most serious in Technology Systems. Unfortunately, the leadership team here is from the totally uncreative Services side of the business. this is mainly a Support business, which is pure drag from the hardware business. These are not product generating, visionary leaders. Carly, while aggressive in her directives and "aspire planning" is really quite wimpy in managing her staff. Therefore she doesn't trust them, requiring every major operational initiative to have to waste time being trucked up to her. Her lack of patience for processes, and lack of instinct in understanding how large organizations work as a living breathing entity are disheartening to see.

The quarterly leadership briefings have become nerve-wrackingly quiet when it comes to question and answer. Nobody dares ask a controversial or threatening question for fear of being labeled "weak."

Just not an inspiring role model.

plusaf 01/27/05 07:07:36 PM EST

thank you all for saying that! all of you! if there's any hope for hp, it'll come from the BOD tossing her out. if they had any cojones at all, they'd buy enough lawyers to undo any golden handshakes, too.

indeed, she HAS nearly destroyed an American business icon, virtually single-handedly. how? first, by believing that she and only she knows what's right, or the truth. that ain't the case.

second, by not firing several hundred VERY ineffective and wrong-headed upper and middle-managers from the very get-go. she kept and fertilized the cancers that started taking hp down a decade or two before she even arrived.

"Carly is very, very aggressive in how she sets her goals, and she doesn't like to hear 'no'. I think people try to tell her about the problems, but you don't get anywhere. That kind of percolates its way down to the rest of the company and is sort of a disease."

google that quote......

and to the rose-colored-glasses-wearing contributors to this thread, no, she won't read any emails you send. they're very effectively filtered by her "loyal" staff, making sure that the above quote isn't threatened.

i'd sent her emails, internally, for several years before i retired from hp in '02. for one, two levels of management asked [told] me to cease and desist, and when i accused one of CF's top managers of blowing smoke up her.... [you know what]... the Finance Guy of one of the managers i'd mentioned took me behind the woodshed for about a half hour. the Guy Himself didn't have the "time?" [cojones...] to do it himself. and his finance guy was squirming in his seat either because he had a huge case of hemhorroids or he knew i was telling the truth and he had to put up a good show.

all i believe is that hp didn't need to decay as it has, and that the "worker-bees" HAVE been trying to keep the ship afloat and headed in good directions, DESPITE all of the horrible things they've been made to do by middle and upper management. because of the lousy tech job market, most would rather stay than try to find a better job [even a tattered security blanket feels better than the potential for none at all...], and so many people have described the atmosphere inside hp as one of abject fear, that it practically makes me cry.

what hp could have been, without her and the lousy managers..... there will be hundreds of HBR case studies done in the coming decades, about the decay.

i just with i could be part of the recovery team.

+af
www.plusaf.com

springerst94 01/26/05 05:20:10 PM EST

...///Carly's gone///...

If it's for real, it's about time. Perhaps we'll finally see most of the cr*p brought over from the acquisition disappear. It would be refreshing to see HP conduct business again as HP instead of Czarly's Comcr*p Company.

Perhaps now the focus will be on products with some margins versus commodities and Dell.

billyliar66 01/26/05 05:17:42 PM EST

||||yeah 5 writes: Her time is up. She's destroying an American icon through inability to execute a sound strategy||||

She makes $20,000,000 a year, has another $5,000,000 in jet costs, entourage, etc. picked up by HP, and is required to do nothing.

Who would ever leave a gig like that?

mawdicker1999 01/26/05 05:15:27 PM EST

According to this guy at MSN, one of his 12 predictions for '05 is that the board will oust Carly and replace her with a former Dell exec. The new team pares down the production and distribution infrastructure, revamps sales and marketing and produces a comeback in just 6 quarters. The idea that the change is working catches investores by surprise, and the stock becomes a leading name in the Dow for '05. Carly's gone.

CarolLoomis 01/26/05 04:20:59 PM EST

Buying Compaq hasn't paid off for Hewlett-Packard's investors. Not by a long shot.

Fortune 01/26/05 04:19:48 PM EST

did the famed merger that Fiorina engineered between HP and Compaq produce value for HP's shareholders? Second, with that merger nearly three years past, is HP in shape to thrive in its brutally competitive world?

yeah5 01/26/05 03:39:19 PM EST

///Fiorina's potential near term departure opens up many possibilities. Based on her performance to date, it could be a messy, expensive affair if the Board tries to force her out///

Her time is up. She's destroying an American icon through inability to execute a sound strategy

cpo82002 01/26/05 03:34:55 PM EST

In my opinion, it is only a short time before she is out of there. The news is beginning to leak out, and I would bet there are serious negotiations going on right now as to what her golden parachute will be. Of course, it will have to look as if she is doing the departing on her terms and not being pushed out the door.

I would expect the news within a few weeks if not sooner.

laginda_1931 01/26/05 03:28:41 PM EST

I believe CF has done damage that can't be repaired, like the Compaq mess and the destruction of the old HP.

As for paying to get rid of her, even $300 million should be considered a bargain. She's already cost far more than that. It's galling of course, because much apart from receiving anything, she ought to be shelling out.

makksb 01/26/05 03:26:24 PM EST

Investors dislike risk and uncertainty. Fiorina's potential near term departure opens up many possibilities. Based on her performance to date, it could be a messy, expensive affair if the Board tries to force her out. A more reasonable person would have understood that she had alientated employees, investors and customers earlier, and left instead of raiding the treasury and bribing bankers to force the merger thru. If this turns in to another dog fight, the stock will suffer.

We also don't know who the Board will recommend as a replacement. Currently they don't have much credibility. They hired Fiorina and allowed her to stay years past when it was clear she was failing

makksb 01/26/05 03:26:23 PM EST

Investors dislike risk and uncertainty. Fiorina's potential near term departure opens up many possibilities. Based on her performance to date, it could be a messy, expensive affair if the Board tries to force her out. A more reasonable person would have understood that she had alientated employees, investors and customers earlier, and left instead of raiding the treasury and bribing bankers to force the merger thru. If this turns in to another dog fight, the stock will suffer.

We also don't know who the Board will recommend as a replacement. Currently they don't have much credibility. They hired Fiorina and allowed her to stay years past when it was clear she was failing

RH agrees 01/26/05 03:07:11 PM EST

Red Herring is saying Carly's the modern face of HP,adding: "But sources say that her hands-on approach is frustrating subordinates and creating a bottleneck around thats hampering the companys ability to respond quickly to market changes. According to some HP watchers, Ms. Fiorina is a brilliant strategist but not much of a people person. She does not seem to have confidence in her team, says one source."

the_ink_must_flow 01/26/05 03:02:10 PM EST

These media articles are starting to smell like Wall Street is trying to shake HP stock out of weak hands. Everyone wants positive changes to happen at HP, but there's no way the media is going to drum Carly out of the CEO's job. Only bad earnings/revenue guidance can do that. And, if she does leave, the stock will most certainly rise several points.

BC 01/26/05 03:00:19 PM EST

The biggest problem isn't that earnings have been so bad; it's that they could have been so much better with solid execution. It like Michael Jordan scoring 15 points on game in the NBA; great for a journeyman player, not so good for MJ.

chaosanddiscontent 01/26/05 02:59:39 PM EST

There was an article a few days back about HP settling a lawsuit with some company that was going to cost them a few cents/share on this quarters announcement, not sure how that will affect analysts opinions of results.

boley02 01/26/05 02:57:50 PM EST

Everyone should email Carly with your thoughts and opinions. I guarantee her executive secretary or head of security will get the messages. Some will probally be read by Queen Carly herself. (carly.fiorina@hp.com)

princeleo2894 01/26/05 02:47:19 PM EST

I lost my job too, now I have a better one, but I will never buy an HP product untill this cold hearted woman leaves the company.

I can not accept her ruining the company with her lies, destroying jobs but at the same making lots of money for herself and her family and leaving a lot of fantastic people in the street

Bob Schuck 01/26/05 02:43:13 PM EST

As a former 29 year 4 month employee of HP (dumped by Carly w/ 16,000 others), I find her lousy tenure at HP partly the fault of the financial press not being on her case more. Also, the BOD has been asleep at the wheel. Your article makes a lot of sense and more needs to be written about how she has ruined a once admired company and created no shareholder value since her hire. How can a company be efficient when every employee has their morale squashed?

Asked&Answered 01/26/05 02:41:30 PM EST

###The Challenge: How Does a Company Succeed in Enterprise IT, Personal Computing, Peripherals, and New Technologies Simultaneously?###

It doesn't!

shbrom 01/26/05 02:37:50 PM EST

Even Business Week, which hasn't given CF a pass post-merger, thinks the merger was OK. But BW also believes that she must develop consistency in reported earnings and improve margins in the commodity businesses. The board "rumor" (sounds pretty strong to me) being leaked is not really in the interest of shareholders. The board should either issue the result of its deliberations or keep quiet, not have leaks which might give advantage to those closer to the kitchen, assuming the latest leak really came from the BoD (which might not have been the case).

woweebay 01/26/05 02:34:29 PM EST

I used to work there. It ain't the same HP since "that woman" took over. It's just another high tech company competing in the marketplace that uses and misuses its workers like all the rest. Carly is best CEO ever...for DELL, IBM and SUN.

tech_recoveries 01/26/05 02:33:15 PM EST

HP is the most successful most envied company out there in nearly every market they enter. Look at the innovation and leadership in printers, high end computers, iPaq handhelds, and digital cameras.

Now the so-called leaders like Dell and others are trying to enter these markets with me-too emulations on a bargain basement price proposition.

Could it just be that HP as a leader is being unjustifiably criticized but justifiably copied, and those following HP's footsteps should be examined for why they must look to HP for thought and product and solutions leadership? Its competitors speak one way and emulate another.

Interestingly this HP leadership will come to the forefront of public awareness as consumer digital imaging cameras, HDTV, entertainment enters into leadership. Then the talking heads will begin to recognize HP's greatness as well.

And critics will question HP's followers and why they can't "invent" like HP and other TRUE LEADERS.

viperjk99 01/26/05 02:26:48 PM EST

HP has grown better than Dell using GAAP numbers, and better than IBM using any type of numbers.

gulfstreem_queen 01/26/05 02:25:34 PM EST

HP's annual meeting is coming up soon.

Send a message - vote no for all directors.

Suspicious? 01/26/05 02:19:04 PM EST

Fortune has published a Carly-negative piece:
"Hewlett-Packard: Why Carly's Big Bet Is Failing"

Then late last night the Wall St Journal published another Carly-negative piece:
"Carly Fiorina Fails At Hewlett-Packard After Betting Badly"

Now SYS-CON Media...what's going on here? A media conspiracy?