Losing the HP Way

Two years after Carly Fiorina pulled off a transforming merger, Hewlett-Packard looks huge, frail and confused.

In a job that requires being tough and even ruthless, also being one of the most charming bosses in your industry does not hurt. Carly Fiorina, the chief executive of Hewlett-Packard (HP), has that advantage. Attractive, stylish, a good conversational partner on topics ranging far beyond technology — she was a medievalist at college — Ms Fiorina stands out in the geeky, male world of computing. With so much yin to dazzle and distract, her aggressive yang instincts pack that much more force. Thus, in 2002, she pulled off one of the most controversial mergers ever, of HP and Compaq, over the bitter opposition of Walter Hewlett, a son of one of HP’s founders, and despite a cliff-hanging 49% of HP’s shareholders voting against it.

Her problem ever since has been to justify the beast she thereby created. HP’s shares are worth less today than on the day before the merger was announced or on the day it closed. A consensus has emerged in the industry that the new HP, the tech industry’s most sprawling conglomerate, has lost its focus and is being squeezed between two formidable rivals with much clearer business models, Dell and IBM. Where Dell stands for cheap, simple boxes in an industry that is commoditising, and IBM stands for patching together lots of fiddly subsystems in an industry that remains ridiculously complex, HP seems a lukewarm compromise.

As if to prove that thesis, HP announced on August 12th that its profit for the latest quarter, at $846m, was less than a year earlier and far below what Wall Street had been expecting. On the same day, Dell said that its quarterly profit was up by 29%, while IBM, which had already announced a 17% increase in quarterly profit, added that it would hire 18,800 people this year.

Stuck in the Middle with Carly

Ms Fiorina reacted by giving another glimpse of her tough side, firing three top executives on the spot, and stubbornly sticking with her strategy. For two years, she has, time and again, been intoning the same script. HP is far from “stuck” between Dell and IBM, she asserts. Instead, Dell, famous for its supply chain rather than its patents, represents “low tech and low cost”, while IBM, best known for its armies of technology consultants, peddles “high tech and high cost”, which leaves only HP to offer “high tech and low cost” and therefore “the best customer experience”. Yet the pressure is starting to show. In a recent speech, Ms Fiorina started 11 sentences with an irritable “Frankly,…”.

Her problem, in a nutshell, is that HP is trying to be all things to all kinds of customers, and is leaving more and more of them plain confused. HP dominates in the market for printers, both laser and inkjet, and both for consumers and companies. It is also strong in handheld computers and some other consumer electronics items, such as digital cameras. In desktop personal computers and notebooks, HP runs neck-and-neck with Dell as the world’s biggest supplier.


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