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Despite showing some Gerstner-like tendencies in her first two years of tenure--like cutting HP's 83 product divisions down to a more manageable threesome--Fiorina is adamant that HP will not abandon the desktop-computer market. "It doesn't make sense to get out of the PC business," she said during a conference call last Tuesday. She intends the PC systems, together with the company's one cash cow, its printing and imaging business, to become "an entree" to making those all-important service contracts with corporate middle America. HP sells about $10 billion worth of services annually, most tied to its proprietary servers. Trouble is, its share of the server market is rapidly shrinking as Microsoft Windows NT-based servers from Dell and Compaq take over. "This is a hard market to crack," admits John Brennan, HP's vice president of strategy.
Which is why it would have helped enormously if HP had gone through with last year's attempted purchase of PricewaterhouseCoopers, the accountancy firm whose fat Rolodexes could turn contacts into contracts. In this respect, Compaq is a poor consolation prize. Not only do the Houston firm's products and services overlap almost completely with those of Palo Alto, Calif.-based HP, but there is still blood on the floor from Compaq's semidigested merger with server and storage company Digital Equipment Corp., a disaster described by a Compaq engineer as his company's "original sin."
That makes Fiorina's task all the tougher. "You're really talking about integrating three cultures--the original Silicon Valley company, the Texas upstart and [Digital's] bunch of M.I.T. engineers," says Barry Jaruzelski, head of global computers at Booz-Allen & Hamilton, a consulting firm. "I can't imagine anything more difficult." HP sprang to life in 1939 as a manufacturer of testing instruments, such as oscillators. David Packard and Bill Hewlett created a culture defined by the HP Way, an open, people-oriented environment that created an engineering paradise. Indeed, HP could claim that it invented Silicon Valley.
Fiorina, who once noted that "all Compaq has done is follow our strategy by nine months, to the letter," is now doing her best to mend wounds. Her most telling act last week was to send a honey-coated e-mail to all Compaq employees, acknowledging the "surprise and fear" they might be feeling and professing her "deep respect for Compaq: your tenacity, your resilience, your drive, your commitment." It was signed "Warm regards, Carly." Whether that goes down well as Compaq suffers its portion of the predicted 15,000 layoffs--totaling roughly 10% of the combined company--remains to be seen.
Compaq's best asset may well be Fiorina's most trusted subject--Capellas, the chief executive who negotiated the deal with her over the past 18 months and will become HP's president. In contrast to their companies, Fiorina and Capellas have a relationship as complementary as it is cozy. "She is forward looking and charismatic; he's more of a nuts-and-bolts operations guy," says Rob Enderle, West Coast research fellow for Giga Information Group. "That can make for an extremely powerful team, assuming he relocates to California. This cannot be done remotely. They have to be joined at the hip."