HP Faces Pressure in Replacing Fiorina

Now comes the hard part. Having dispatched Carly Fiorina as chairman and CEO of Hewlett-Packard Co. last week, HP board members are faced with the daunting task of finding someone who can accomplish what the estimable Fiorina couldnt—make HPs enterprise business worth the $19 billion the company paid for Compaq Computer Corp. in 2002.

Fiorinas successor will have to find a way to more tightly align HPs disparate business groups and products and give the Palo Alto, Calif., company a clearer vision, said enterprise customers and industry analysts.

Her departure especially will add fuel to the debate among financial analysts over whether HP—and its customers—would be better served by spinning off some of its businesses—in particular, printers, imaging and PCs.

"HP-Compaq certainly has had a major focus on the consumer market," said John Halamka, CIO of Harvard Medical School and CareGroup Health System, in Boston, which uses some 200 Wintel and Unix HP servers.

"You have to ask whether the current focus on the consumer market distracted a company that has traditionally focused on the enterprise. Id love to see a company focused on my marketplace. The high-end Compaq gear was extraordinarily reliable, and the high-end HP gear has had more failures."

Read more here about Carly Fiorinas departure from HP.

In announcing Fiorinas departure, HP executives said that the companys board of directors was committed to the strategy she had laid out but that better execution was needed.

However, analysts said such statements were curious, given the companys problems since the Compaq acquisition. Execution has been a problem at HP, but the strategy needs to be cleared up.

"I find this sort of singular focus on execution a little surprising because there are strategy issues that need to be discussed," said Gordon Haff, an analyst with Illuminata Inc. "Theyre lacking a truly integrated strategy."

HP also finds itself pressured on several fronts. In the server area, HP is battling Dell Inc. on the low end and IBM on the high end.

In addition, HP is competing with Dell in PCs and with IBM in services, and it must stem the bleeding of its embattled storage business.

Right now, HPs Imaging and Printing unit accounts for the bulk of the companys profits. Because of this, the pressure to spin off parts of the company will increase.

During a meeting with financial analysts in December, Fiorina said the board had debated that issue three times over the previous few years and each time agreed with her that it was a bad idea. Thirty-six-year HP veteran Robert Wayman, the chief financial officer and interim CEO until Fiorinas replacement is found, reiterated that last week.

"We have a unique portfolio, one that is stronger together than apart," Wayman said.

Fiorinas departure means that the idea will nevertheless be revisited. Leslie Fiering, an analyst with Gartner Inc., said HP has been slow to respond to trends in its PC business—releasing notebooks with Intel Corp.s Centrino mobile technology after competitors did, for example—an indication that HP had difficulty integrating Compaqs engineering units with its own.

"Compare Gateways eMachines acquisition," said Fiering in San Jose, Calif. "The speed with which they were delivered suggests that the design teams integrated and got to work almost immediately after the acquisition."

Next Page: The search for a successor.