Fiorina Takes Quick Action To Right HP

Hewlett-Packard announced the firing of three top executives after reporting a dismal quarter and acknowledging that the company’s failure to execute on its own internal computing initiatives left it vulnerable to competitors.

HP, which released earnings a week before they were expected, fell far short of targets and lowered its profit outlook going forward. HP earned US$586 million, or 24 cents a share, in its fiscal third quarter, 7 cents below targets. HP did manage to grow revenue year over year to $18.9 billion, in part on the strength of growing consumer PC sales.

HP shares tumbled some 13 percent Thursday and were losing ground again Friday morning, down 1 percent to $16.73 by midday. By contrast, Dell reported a strong second quarter, with revenues setting a company record and profit up 29 percent, and maintained its outlook going forward.

In the aftermath of HP’s results, CEO Carly Fiorina announced that three executives, including those responsible for sales of servers and storage system as well as a push to migrate HP to new systems designed to make it more efficient, were being fired.

An internal effort to install a new supply-chain management and order-processing system took twice as long as expected and resulted in the company having to slash prices to move some equipment off the shelves.

“Solid results were overshadowed by unacceptable performance in enterprise systems and storage,” Fiorina said during a conference call. “Here, execution issues cost us, and we are therefore making immediate management changes.”

Test for Carly

Among those ousted was server group chief Peter Blackmore, whose tenure with HP dates to its 2002 merger with Compaq. Blackmore’s role will be filled by Chief Marketing Officer Mike Winkler, who will retain his current title as well.

Published reports suggested Blackmore was aware of problems within his business unit but failed to alert higher-ups until it was too late. Jim Milton, senior vice president and managing director for the Americas, was also replaced, as was Kasper Rorsted, senior vice president and managing director for Europe, the Middle East and Africa within the solutions group.

HP said the failure to execute its own technology push — an embarrassing admission for a company whose services unit is among its growth engines — caused it to miss some business opportunities or spend more money, such as shipping products by air at the last minute.

The turmoil marks another challenge for Fiorina, who is credited by many as the architect of what had been widely viewed the successful though controversial merger with Compaq.

Assuring Investors and Correcting Problems

Enderle Group analyst Rob Enderle told the E-Commerce Times the moves have three main goals, including assuring investors and correcting the problem.

“But the most important is to show the other employees such behavior will not be tolerated,” Enderle said. “An executive can’t be everywhere at once and depends on the integrity of staff, when that integrity doesn’t exist it can lead to serious problems. This simply showcases that therisk of reporting a problem will most likely be less than the risk of covering it up.”

Enderle said the firings are consistent with Fiorina’s approach and show her to be a take-charge CEO.

“She did something similar when a couple of other executives were caught in a public affair that was inappropriate and could have reflected badly on the company. She actually shows no tolerance for misbehavior and having lived through what can happen when executives tolerate this stuff, personally I prefer her approach,” he added.

Bigger Issues?

Although Dell seemed to be a beneficiary of HP’s missteps, the shortfall and the weak outlook raised new questions about the strength of the tech sector.

Gartner vice president Charles Smulders said that if tech spending is slowly slightly, execution takes on even greater importance.

“When things are expanding, it covers a lot of missteps,” Smulders told the E-Commerce Times. “In a market that isn’t growing as quickly, companies that execute are going to do better, probably at the expense of those that fail to do so.”