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Hewlett-Packard Board Considers Cutting Fiorina's Power

By PUI-WING TAM, Staff Reporter, The Wall Street Journal



Directors of Hewlett-Packard Co., unhappy with the uneven performance of
the giant printer and computer maker, are considering a management
reorganization that would distribute some key day-to-day responsibilities
of Chairman and Chief Executive Carly Fiorina among other executives, said
people familiar with the situation.




At its annual planning meeting between Jan. 12 and Jan. 15, H-P's board
discussed giving three senior executives more authority and autonomy over
key operating units, according to people familiar with the matter. The
board also has asked Thomas Perkins, a prominent venture capitalist and a
former H-P director, to rejoin the board, these people said.

Ms. Fiorina, who plans to attend the World Economic Forum in Davos,
Switzerland, declined through an H-P spokesman to comment. "Boards discuss
a wide range of topics consistent with their fiduciary responsibilities,"
said the H-P spokesman. "The board discussed structural changes at its
recent meeting and these were announced on Friday, Jan. 14."

People close to the situation emphasized that Ms. Fiorina's job isn't on
the line and that the board wants her to succeed. These people said the
board isn't aiming to curb Ms. Fiorina's power but to help H-P more quickly
meet customer demands and respond to competition from rivals like Dell Inc.
and International Business Machines Corp. Ms. Fiorina has rejected
suggestions from some investors that she name a strong No. 2.

Ms. Fiorina "has tremendous abilities," one person close to the situation
said. "But she shouldn't be running everything every day. She is very hands
on, and that slows things down."


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Ms. Fiorina, 50 years old, is one of the nation's most visible CEOs. The
former Lucent Technologies Inc. executive joined H-P as its first outside
CEO in July 1999 with a mandate to revive a Silicon Valley icon that had
fallen behind its peers and was viewed as a lumbering, inefficient giant.

During her tenure, Ms. Fiorina has centralized power by winnowing the
number of H-P's business units from 83 to just a handful and consolidating
executive authority through her office. She has stemmed losses in H-P's
personal-computer division, in part through extensive layoffs and other
cost-cutting. She also pushed through H-P's bitterly contested $19 billion
acquisition of Compaq Computer Corp. in 2002.

H-P's profits and revenues have soared during her tenure, in part because
of the acquisition of Compaq. In November, the company reported fiscal 2004
net income of $3.5 billion, up 38% from a year earlier, while revenue at
$80 billion was up 9%. Since 1999, revenue has roughly doubled, while net
income for 2004, after dropping in her early years as the tech bubble
burst, has returned to its 1999 levels. When Ms. Fiorina arrived, H-P had
missed Wall Street earnings expectations for nine consecutive quarters.

Yet she also has faced some obstacles. H-P's stock is down roughly 55%
since Ms. Fiorina took over, while rival IBM's shares have dropped 32% in
the same period and Dell shares are off only about 9%. To win approval for
the Compaq deal, Ms. Fiorina had to overcome opposition from Walter
Hewlett, son of H-P founder William Hewlett and at the time an H-P
director, and survive a vitriolic proxy fight that spilled into the courts.
After absorbing Compaq, H-P laid off thousands of workers to cut costs.





H-P still faces many of the same challenges as it did when Ms. Fiorina
arrived. The PC unit has been losing market share to Dell, and the
corporate-computing unit, which includes storage, software and server-
computers, has remained weak amid competition from IBM and EMC Corp., among
others. One of the few bright spots has been the company's printing-and-
imaging division, which generates more than three-quarters of H-P's profits.

Meanwhile, the company's financial performance, while improved, remains
inconsistent. Last August, for instance, H-P badly missed its fiscal-third-
quarter financial projections. Ms. Fiorina blamed the miss on a botched
internal technology-systems transition, aggressive product discounting and
a lack of sales specialists, and fired three top executives. H-P reported
solid fiscal-fourth-quarter results a few months later. It is due to post
fiscal first quarter earnings in mid-February.

Over the past few years, many rising executives have jumped ship to
companies such as EMC and Nokia Corp., including former enterprise
computing executives Mark Lewis and Mary McDowell. Last August, Alex
Gruzen, an H-P executive in charge of laptop and hand-held computers, went
to Dell to become a senior vice president. H-P's board has been unhappy
with the exodus of executives, especially of young up-and-comers, said one
person familiar with the matter.

Throughout the turmoil, Ms. Fiorina has been subject to an unusual amount
of criticism, in good part from critics who thought she eschewed H-P's
collegial roots, for instance with her aggressive pursuit of Compaq. But H-
P's board has stood by her, even during a difficult eight-month proxy
battle over the Compaq deal. Indeed, Ms. Fiorina has said that the board
had three times backed her position in rejecting a spin-off of H-P's
profitable printing-and-imaging unit, a plan she also opposed.


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But in recent months, directors have grown uneasy with H-P's uneven
performance, according to the people familiar with the matter. The board's
concerns, according to these people, include the mediocre performance of
the PC business, which ekes out thin profits, and the perception that H-P
holds weak market positions against IBM and Dell. Three H-P directors
discussed these issues with Ms. Fiorina during a meeting to set the agenda
of the planning sessions several weeks before they were held, these people
said.

Under the reorganization plan discussed by the board at San Francisco's
Park Hyatt Hotel, three H-P executives would gain more day-to-day control.
They are Vyomesh "VJ" Joshi, who leads H-P's printing and personal-
computing division; Ann Livermore, head of services and enterprise
computing; and Shane Robison, the chief technology and strategy officer,
people familiar with the matter said. One person close to the situation
said Ms. Fiorina initially had resisted the moves, but by the end of the
session had agreed with directors and was on good terms with them.

Mr. Joshi would gain more decision-making authority in his role as the head
of the printer-and-PC group, these people said. He was named to a newly
created role leading the combined printing and PC unit only on Jan. 14,
after just leading the printing division for the last several years.

The board also discussed how Ms. Livermore and Mr. Robison would transition
into roles with expanded authority over a combined operating arm that
includes corporate computing, services and sales, people familiar with the
situation said. The details of Ms. Livermore's and Mr. Robison's
responsibilities are still being worked out, said one of these people.

Directors also asked Mr. Perkins to rejoin the board, a year after he
retired from it, these people said. Mr. Perkins, a founder of the venture-
capital firm of Kleiner Perkins Caufield & Byers, had been an outspoken
figure on the board. Directors contacted Mr. Perkins about potentially
rejoining the board about two months ago, and formally invited him back on
Jan. 12. In a Securities and Exchange Commission filing on Friday, H-P said
director Sanford Litvack, a former Walt Disney Co. executive, won't stand
for re-election at the company's annual meeting on March 16.

A break-up of H-P wasn't discussed at the planning session, said one person
close to the matter. Some Wall Street analysts and investors have clamored
for H-P to spin off its printer-and-imaging business, arguing that it is
worth more on its own. But this person said the board agrees with Ms.
Fiorina that keeping H-P whole makes the company stronger than breaking it
into pieces.










01-24-05 07:05 EST

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