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Fiorina out, HP stock soars
CEO who engineered Compaq merger leaving after fight with board; will walk away with $21 million.
February 10, 2005: 9:15 AM EST
By Paul R. La Monica, CNN/Money senior writer
Carly Fiorina is leaving Hewlett Packard, effective immediately.
Carly Fiorina is leaving Hewlett Packard, effective immediately.
Chief financial officer Robert Wayman was named interim CEO.
Chief financial officer Robert Wayman was named interim CEO.
Shares of HP have done little since the company first announced it was buying Compaq in 2001.
Shares of HP have done little since the company first announced it was buying Compaq in 2001.
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One of the nation's most high-profile female CEOs, Carly Fiorina, is leaving Hewlett-Packard.
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NEW YORK (CNN/Money) - Hewlett-Packard Co. Chairman and CEO Carly Fiorina, one of the most powerful women in corporate America, is leaving the troubled computer maker after being forced out by the company's board.

Shares of HP (Research) jumped 6.9 percent in heavy trading on the New York Stock Exchange Wednesday on the news. But at one point, the stock was up as much as 10.5 percent.

"The stock is up a bit on the fact that nobody liked Carly's leadership all that much," said Robert Cihra, an analyst with Fulcrum Global Partners. "The Street had lost all faith in her and the market's hope is that anyone will be better."

Fiorina, the only female CEO at a company in the Dow Jones industrial average, had been with HP since 1999. But the company's controversial deal to buy Compaq in the spring of 2002 -- after a bruising proxy fight led by one of the Hewlett family heirs -- has not produced the shareholder returns or profits she had promised.

"While I regret the board and I have differences about how to execute HP's strategy, I respect their decision," Fiorina said in a statement released by the company.

On a conference call with reporters, executives said Fiorina was not terminated for cause and that she would receive severance pay -- and a company spokesman said she'll get a payout of approximately $21 million, including stock options (see correction).

Fiorina told analysts in December that Hewlett Packard (Research) had seriously considered breaking up the company on three separate occasions but each time decided against it.

Some industry analysts had argued HP should either split off its lucrative printer and imaging business, or break HP into separate firms, with one focusing on consumers and the other on corporations.

But during a conference call Wednesday morning, HP CFO Robert Wayman, who was named interim CEO, suggested that no major changes in strategy would take place following Fiorina's departure.

"We continue to believe we have the right ingredients for success in the marketplace," Wayman said during the call with Wall Street analysts.

HP stock has been a laggard compared to the shares of rivals such as Dell (Research) and IBM (Research). Shares were trading at only about 13 times 2005 earnings estimates before the announcement, while shares of IBM and Dell traded at 17 times and 26 times forecasts for the current year.

And even after factoring HP's big move Wednesday, the stock was still trading at around the same price it was at when the company announced its merger with Compaq in September 2001.

The legendary Palo Alto, Calif.-based company has struggled to generate profits in the cutthroat hardware business, particularly in personal computers. In fact, slowing sales and stiff competition in the PC business led IBM to announce last year that it would sell its PC unit to China's Lenovo Group -- a deal that some lawmakers are eyeing for what they call national security concerns.

PCs aren't the only trouble spot for HP. In the market for servers -- the computers used to build corporate networks -- analysts say HP has been squeezed by IBM on the high end and Dell on the low end.

The troubles at HP were among the factors that prompted Fortune to demote Fiorina to No. 2 on its list of most powerful women in business, behind eBay CEO Meg Whitman. Fiorina had been No 1 since the list was created in 1998.

Fortune also has a cover story in the current issue entitled, "Why Carly's big bet is failing" with the tag line: "Buying Compaq hasn't paid off for HP's investors. And there's no easy way out."

In its statement, the board said it will start hunting for a new CEO immediately, and that Wayman will remain as CFO. Patricia Dunn, an HP director since 1998, was named non-executive chairman.

During the conference call, Dunn said no other executive changes were planned, adding that a recent round of negative press had no impact on the board's decision.

HP also said it will report results as scheduled after the market close on Feb. 16.

It said it expects results to be in line with the consensus of analyst expectations, after excluding special items. Analysts expect HP to report a profit of 37 cents a share on that basis, up 5 percent from a year ago, on sales of $20.9 billion, up 7 percent.

But Dell, by way of comparison, is expected to report an 18 percent increase in sales and 25 percent jump in profits when it reports its fiscal fourth-quarter results after the closing bell Thursday.

So what's next?

Although Dunn and Wayman both said during Wednesday's call that no major strategic changes were coming, investors were still hoping that a new CEO might be in favor of a split-up.

"Hewlett's news will certainly help HP's stock, the technology sector and the overall market," said Timothy Ghriskey, stock market strategist and president of Ghriskey Capital Partners. "There's been speculation that it could also be the prelude to the breakup of the company into two or more pieces."

But what ultimately happens to HP will largely depend on who the next CEO is.

Dunn and Wayman did not rule out promoting someone from within the company. If that were the case, the most likely candidate would be Vyomesh ("VJ") Joshi. He had been the widely respected head of HP's printing and imaging division and was recently put in charge of a new unit that combines the printing and PC businesses.

During the call, one analyst asked Wayman whether the company was concerned about Joshi leaving if he were not named the new CEO. Wayman would not comment.

But Fulcrum's Cihra said investors appeared to be banking on HP hiring some fresh blood to shake up the company, regardless of what Dunn and Wayman said.

"Saying they will stick with the current strategy is all the board can say," Cihra said. "I wouldn't expect Wayman to change strategy as an interim CEO. The board isn't likely to make any hard determinations until they get a new CEO."

Michael Mahoney, managing director with EGM Capital, a San Francisco-based hedge fund that has no position in HP, said one long shot possibility would be for HP to bring back former Compaq head Michael Capellas, now the CEO of long-distance telecom firm MCI (Research).

MCI has been rumored to be a takeover target of Baby Bells Qwest (Research) and Verizon (Research), so Capellas could very well need another job soon. However, Mahoney said that Capellas would only be the right person for the job if HP's board decides that drastic action is needed.

"If the goal was to sell the business, Capellas could be an interesting pick," said Mahoney. "But HP has a dilemma. Do you shrink the company and change it or emphasize the core roots?"

Influential tech analyst Steven Milunovich of Merrill Lynch also endorsed Capellas, writing in a research report Wednesday that Capellas was his first choice for the job. Milunovich added though that it would be important for HP to hold on to Joshi.

Correction: An earlier version of this story quoted a company spokesman incorrectly stating that Fiorina's $21 million payout does not include stock options. CNN/Money regrets the error (return to the story).  Top of page

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