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Computer Hardware & Software
The HP Way Out
Scott Reeves and Lisa DiCarlo ,
Carleton "Carly" S. Fiorina, Hewlett-Packard's chief executive, was asked to resign yesterday afternoon. NEW YORK - After a tumultuous six-year tenure,'s chief executive, was asked to resign yesterday afternoon.
Robert P. Wayman, HP's (nyse: news - Patricia C. Dunn, an HP director since 1998, has been named nonexecutive chairman of the board. , HP's(nyse: HPQ people ) longtime chief financial officer, has been named interim CEO., an HP director since 1998, has been named nonexecutive chairman of the board.
"Carly Fiorina came to HP to revitalize and reinvigorate the company," Dunn said in a prepared statement. "She had a strategic vision and put in place a plan that has given HP the capabilities to compete and win. We thank Carly for her significant leadership over the past six years as we look forward to accelerating execution of the company's strategy."
Fiorina joined the company as chief executive, amid deafening fanfare, in July 1999. She was the poster girl for breaking the glass ceiling, the first woman to lead a Dow component. She was attractive, well-dressed and sharp as a tack. Her face was plastered on many magazine covers, and reporters breathlessly covered her arrival.
But the honeymoon didn't last long.
Right off the bat, Fiorina said things everyone wanted to hear. She promised 15% annual sales and earnings growth, a remarkable feat considering that HP, then a $42 billion company, had come off its fifth consecutive year of declining revenue growth. She also vowed that HP would not miss the "second chapter" of the Internet the way it had so badly missed the first. And she promised to foster the inventiveness and creativity that had been HP's hallmark since the company's founding in a Palo Alto, Calif., garage in 1939.
Fiorina decided that HP's future looked a lot different from its storied past. To put its slow-growth past behind it, Fiorina and HP's top brass broke down the company's decentralized structure. Rather than having dozens of product groups operating like mini-companies, Fiorina wanted to centralize sales and marketing for all products into two massive divisions.
Lucent Technologies' (nyse: news - But breaking down a system so entrenched at the venerable company was not easy. And implementation of the plan was not gentle. There was resentment among many people who were stripped of responsibilities, and confusion stemming from suddenly working in an entirely new way. Some say Fiorina, who ran(nyse: LU people ) $20 billion service provider business as its president before taking over HP, may have underestimated the extent to which employees, many of whom had never worked for another company, clung to the HP way.
Walter Hewlett, then a director and the son of a co-founder, fought tooth and nail to squelch the deal. In the end, it came down to a proxy vote that HP won by a small margin. People unhappy with the new system left, and eventually things settled down, until the 2002 announcement that HP and Compaq planned to merge. It was one of the most contested deals in history., then a director and the son of a co-founder, fought tooth and nail to squelch the deal. In the end, it came down to a proxy vote that HP won by a small margin.
IBM (nyse: news - Dell (nasdaq: news - The merger helped HP cut billions in costs and certainly increased its leverage and buying power in the industry, but it hasn't done much to accelerate HP's growth. In fact, many analysts say the company is stuck between(nyse: IBM people ) and(nasdaq: DELL people ), unable to compete effectively or on the same footing with those leaders.
Now, Wayman says HP believes in the strategy Fiorina put forth, but not in her ability to accelerate its execution. Its search committee, which encompasses the entire board of directors, is launching a broad search for a replacement.
HP will report first-quarter results after the market close Feb. 16. It expects results to be in line with analysts' consensus estimates of 37 cents per share. HP shares rose as much as $2.12 to $22.26 today from yesterday's close of $20.14. Later in the morning, they settled to a gain of about a dollar per share. Based on an average of 2.991 billion shares outstanding on a diluted basis for the fiscal fourth quarter ended Oct. 31, 2004, that gain of one dollar per share from Fiorina's resignation has added about $2.99 billion in market capitalization to the company.
Fiorina earned a bachelor's degree in medieval history and philosophy from Stanford University. She received an M.B.A. from the University of Maryland and an M.S. from M.I.T.'s Sloan School.
Last month, HP's board of directors reportedly discussed shifting some day-to-day duties to other executives from Fiorina in an effort to boost the company's performance.
At the time, company insiders said Fiorina's job was not in question.
Video: HP Exposed
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New York - Carly Fiorina was ousted by the board of directors of HP yesterday, much to the delight of Wall Street. Ms Fiorina's resignation was the result of a disagreement with the board over the future of the company. Often cited as America's most powerful businesswoman, Ms Fiorina presided over the multi-billion dollar merger between Hewlett Packard and Compaq Computers in 2002. 

The move comes after several months of intense speculation about her future with the company. Having promised billions in annual savings to the company from the 2002 merger, the combined company failed to keep pace with competitors such as Dell, or to deliver any significant increases in profits, particularly in the personal computer market. A recent investigation by Fortune magazine highlighted the fact that the firm's highly profitable printer business supported the lower-margin computer business. 

After the announcement, HP shares surged 10% on Wall Street against a generally poor performance by the major indices.