The board of directors of Hewlett-Packard Company announced that Carleton S. Fiorina has stepped down as chairman and chief executive officer, effective immediately. Robert P. Wayman, HP's chief financial officer, has been named chief executive officer on an interim basis and appointed to the board of directors. Patricia C. Dunn, an HP director since 1998, has been named non-executive chairman of the board, also effective immediately.

“Carly Fiorina came to HP to revitalize and reinvigorate the company. 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,” said Dunn, on behalf of the board.

“While I regret the board and I have differences about how to execute HP's strategy, I respect their decision,” said Fiorina. “HP is a great company and I wish all the people of HP much success in the future.”

The board will begin a search for a new CEO immediately. Wayman, a 36-year veteran of the company, will also retain his CFO responsibilities. The company does not expect to make any additional structural changes or executive leadership changes at this time.

The company plans to report its first quarter financial results on Feb. 16, 2005, after market close. The company expects results to be in line with consensus analyst expectations, after adjusting for the effects of the previously announced Intergraph settlement.

The company's annual shareowner meeting will be held in Chicago on March 16, 2005.

HPCwire is looking into how this news will affect HP's HPC division. Readers are urged to monitor HPCwire for updates on this.

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Yankee Group Comments on HP's Future Without Fiorina

Carly Fiorina stepping down as HP's CEO signals a new era for the company. But the challenge is significant for the new leader. HP faces some tough decisions in streamlining its business for the fast-changing IT services environment, according to Yankee Group.

HP has performed admirably as a commodity technology services business and has maintained a leadership position in peripherals in recent years. But the company has clearly slipped behind some of its chief competitors with its moves into business process outsourcing and providing a service-oriented platform that decouples business processes.

HP needs to refine its approach and internal structure to develop a stronger position in these markets. The incoming CEO will have to make quick decisions on further acquisitions to propel HP into these growing markets and work fast on finalizing the integration of Compaq's business units. HP now has an opportunity to regain momentum as a technology and business integration pioneer, and the change of leadership might just provide this opening.

The Yankee Group believes there are some key takeaways from this event:

1. At the time of the HP/Compaq merger, HP was split between those who felt that HP was good at peripherals (printers and cameras, etc.) and should not waste its money on Compaq and those that tried to rationalize an outdated set of computer offerings (servers and desktop). Fiorina was on the other side; she felt there would be great opportunities in rationalizing the product lines. HP has had difficulty attracting support to its new product lines. For example, the Itanium chip set has had difficulty achieving volumes or attracting software developers to support the chip set.

The merger was a mistake — period. There were not sufficient synergies to make that deal worthwhile.

2. To drive the merger efforts, Fiorina pushed the workforce. Morale was poor and the skill sets of the workers were relatively unique, culminating in deteriorating performance and weak results. Last December, HP announced an anticipated 8 percent workforce layoff, which further reduced overall morale.

3. Fiorina and HP view the IT industry as a commodity business (as opposed to IBM or Accenture, which view it as complex and non-commoditized). HP has positioned its professional services form the “infrastructure up” as opposed the “business process down.” Yankee Group believes that puts HP in an awkward position — it cannot succeed while still investing in technology development.

4. HP has committed to some very large outsourcing contracts. It remains to be seen whether they bought the business and will be able to profitably execute on these contracts.

Recommendations:

1. HP needs to reconsider its product roadmap: We believe HP will have to aggressively consider a split-up. The split-up, if it occurs, needs to segregate peripherals and the data center environment. If it cannot achieve client buy-in (i.e., volume) for its platforms such as Itanium, it will continue to struggle.

2. Culture counts: HP needs to hire a new CEO who can rally the troops in this time of need.

3. HP needs to focus its services on product attached and integration services: Large scale Outsourcing carries too much risk and at this point is a diversion to their core business.