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FEBRUARY 10, 2005
By Ben Elgin Can Anyone Save HP? Despite the board's insistence that it will stay the course, a breakup may be the only way to turn the company around
Carleton S. Fiorina's last stand at Hewlett-Packard (HPQ ) took place, aptly enough, at an airport hotel. For six years the jet-setting CEO had flown the globe, smiling and perfectly coiffed even as she stepped off of red-eye flights. Jet lag never slowed down her delivery or muddled her message, which described the sprawling HP as nothing less than the beating heart of the tech industry. Yet on a damp Sunday evening in Chicago, as much of the nation focused on the Super Bowl, the 50-year-old Fiorina was embroiled in urgent talks with her board at a conference room at the O'Hare Hyatt, says an HP insider. The next day, Feb. 7, she was fired. Thus ends the stormy reign of the highest-ranking woman in Corporate America and one of the boldest gamblers in the tech world. Fiorina pulled out all the stops as she hitched her soaring ambition to Silicon Valley's most venerable icon. Not content to battle just one tech giant or two, she took on a whole stable of them, from IBM (IBM ) and Dell (DELL ) to Sony (SNE ) and EMC (EMC ). In the end, she failed. Outside of its stellar printing business, the $80 billion HP she leaves behind is struggling in everything from PCs to software. The proud Fiorina departs as a humbled ex-CEO, but not a poor one: The board softened the blow with a $21 million severance package. STRAIGHTFORWARD LOGIC. The board, which named Chief Financial Officer Robert P. Wayman, a 36-year veteran, as interim CEO, is now searching for an exec ready and able to rescue HP. The crucial question for the next leader: Should HP remain intact? For months a number of Wall Street analysts have pushed for a breakup, arguing that HP's pieces, from the dynamic printer division to the lagging computer businesses, would be worth far more apart. Fiorina fiercely resisted the calls, and the board supported her. But following the Feb. 9 announcement of her departure, investors bid up HP stock by 7%, to $21.53, in part because of the possibility of a change in course. "We believe the long-term probability of a breakup of the company is rising despite indications from the board that no such move is currently planned," wrote analyst Steven Milunovich of Merrill Lynch & Co. in a report that day. The forces for a breakup may grow by the time Fiorina's successor takes over. The logic is straightforward: HP may simply be trying to do too much. The giant lacks both the resources and management skills to compete with the best of the best in nearly every industry in tech. And investors aren't likely to wait patiently for a gradual turnaround. DEEPLY DIVISIVE. The simplest choice would be to spin off the corporate computing businesses, which are struggling against Dell and IBM, and force them to make the tough choices necessary to survive as independent entities. Then a trimmed-down HP could plow ahead as the world's leading printing and imaging company. No doubt analysts inside the company and out will be slicing HP into countless permutations over the coming months and feeding them into their computer models. "You want to organize your business around your customers, or at least around your markets," says Ted Schadler, a vice-president at Forrester Research Inc. "To do that, you want to split up your business." At HP, where Fiorina was a deeply divisive figure, news of her departure brought starkly different responses. As the board stated its determination to stick with Fiorina's broad-based strategy, some employees felt sorrow at her departure. For others, "it was a shock, then it was a party," says one. Then an e-mail began making the rounds: "Dingdong, the witch is dead." "HERCULEAN TASK." Now HP's board is on the hunt for a replacement. They're looking for a CEO who can rescue HP, much the way Louis V. Gerstner Jr. lifted a troubled IBM from the sick bay when he arrived in 1993. A leading candidate, say insiders, is MCI (MCIP ) CEO Michael A. Capellas, who sold Compaq Computer to Fiorina in a hotly contested $19 billion merger three years ago and briefly served as her No. 2. Other possibilities include IBM's global-services chief, John Joyce, and Edward J. Zander, the former president of Sun Microsystems (SUNW ) who is now CEO of cell-phone giant Motorola (MOT ). But even the most talented exec will face an uphill battle trying to keep Fiorina's HP, with its sprawling array of products in dozens of different markets, in one piece. "It's a Herculean task," says Jay R. Galbraith, a management consultant and author of Building Organizations Around the Global Customer. One question is whether the board's stated commitment to Fiorina's plan will hamper the headhunting effort. The high-powered execs being considered may be loath to take on what has proven to be such a difficult task, particularly if they can't set their own strategy. "If some executives get the sense that their hands are going to be somewhat tied in making significant changes, that will limit the pool of eligible candidates," says analyst Tony Ursillo of Loomis Sayles.
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