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Tuesday, November 30, 2004

Carly Fiorina's Rough Ride - Part 1

Wall Street Journal has published an interesting interview with Carly Fiorina . Carly talks about job cuts,Compaq, profit misses and tech's hard new reality. Part 1 Excerpts ( with edits and my comments added):

It's been a rough few years for technology companies. The Internet and telecom bubbles burst, provoking the steepest and longest decline in tech spending in decades. Then came a tepid recovery, which already appears to be losing steam. The 50-year-old Carly Fiorina has reshaped H-P since joining tech giant in 1999. First she centralized H-P's semi autonomous divisions. Then she staked her job on the contested $19 billion acquisition of Compaq Computer Corp., a move designed to turn H-P into a giant the size of industry behemoth International Business Machines Corp. The jury is still out on whether Ms. Fiorina's strategy is working. H-P's stock is down about 55% since her arrival, more than the 30% decline at IBM and 7% decline at Dell Inc. over the same period.This year has been particularly rocky for Ms. Fiorina. After H-P badly missed financial projections, analysts suggested she hire a chief operating officer or break up H-P's vast operations, which span printers, home and office personal computers, servers and services. Numerous high-level H-P executives departed under pressure. H-P recently reported solid fiscal fourth-quarter results but some employees are whispering that Ms. Fiorina may be the next to go -- perhaps for a career in Republican politics.

Carly's views on various issues around HP:

On the fact that technology become a utility-like industry, with permanently slower growth - "I think that the tech industry is going to grow at two times growth [in U.S. gross domestic product]. It was a five-times-GDP-growth industry in the late 1990s, and that was unsustainable. Now we've entered a period where tech is fundamental. When something becomes fundamental it involves a more important and complex set of decisions, so growth slows. By the way, two times GDP is an OK growth industry. But it's not what it used to be.I think there are changes that are yet to occur. The software industry still has some consolidation to go. [So does] the communication-technology side".

On How tech companies can manage this shift toward slower growth - We are focused on three pretty fundamental things.

- The first is that the focus on cost structure is ongoing and relentless. It's not a question of people tightening their belts once. It's a question of looking day in, day out at how do we get more efficient and effective. H-P, as an example, has had a discipline of outsourcing its manufacturing for 30 years. Now we apply that discipline to every part of our business.

- The second thing is: How do we grow our share of wallet with customers we already have? And in fact, that's a pretty big growth opportunity for us, and

- The third thing is: How do we grow new businesses by leveraging capabilities we already have? [Our new focus on] digital entertainment is an example of that. This is different from a rising tide lifts all boats, which is what the 1990s were like. People had the expectation that post-2001, that's what it was going to be like again. I don't think that's realistic in the tech industry anymore.

On falling HP stock prices - "There's no question that when we are inconsistent, that hurts us. But I think it's much more than that. When I came in to H-P in the latter half of 1999, this was a company that had missed nine quarters of earnings in a row in the middle of the biggest tech boom in history. We were growing at 2% to 3%. Even our vaunted imaging-and-printing group was earning less than half of what it is today. Then we announced the Compaq merger. Now we're in a period where we've integrated the company, and over the course of the last two and a half years, have produced $2 billion more in revenue than analysts estimated. But it hasn't been consistent performance quarter over quarter. So now we have to execute.
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"All views expressed are my personal views are not related in any way to my employer"