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Carly's way
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February 14, 2002: 4:27 p.m. ET
Hewlett-Packard's CEO Carly Fiorina is sounding pretty persuasive these days. But the proposed HP-Compaq merger is still a bad idea.
By David Futrelle
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NEW YORK (CNN/Money) - When did everyone start listening to Carly Fiorina again?
Not that long ago, HP's controversial CEO was generally regarded as damaged goods -- an aloof outsider fundamentally out of touch with the egalitarian "HP Way," flying about the country by corporate jet even as she sent thousands of loyal employees packing.
Her plan to merge HP (HWP: down $0.10 to $20.88, Research, Estimates) and Compaq (CPQ: unchanged at $11.40, Research, Estimates) was derided by many as "Fiorina's Folly," and many were sure she would soon follow the workers she'd fired into the ranks of the jobless.
Now, all of a sudden, she's looking and sounding a lot like the smooth, charismatic Carly of yore -- the one who garnered so many flattering magazine cover stories back when she first took over at HP in July 1999.
It's doesn't exactly hurt that she just delivered first-quarter profits that easily beat an already-raised Wall Street consensus (see more). "These results show we know our business better than anyone else," she said in a company conference call -- a none-too-subtle jab at HP board member Walter B. Hewlett, a son of company co-founder Bill Hewlett and a none-too-subtle opponent of the proposed merger. (Hewlett, for his part, says the surprisingly good results only bolster his argument that HP can survive and even thrive on its own.)
Fiorina was on a roll even before the quarterly results were in. In recent weeks, she's pounded home her argument for the merger in speeches and full-page newspaper ads. You can find all the details of her argument at www.votethehpway.com.
But in a nutshell, she argues that only together will HP and Compaq be able to produce PCs efficiently enough to compete against Dell and to take the top spots in the storage and server markets. That only together will HP and Compaq be able to take on IBM in IT services. And that only with Compaq will HP be able to survive as more than just a glorified printer maker.
In contrast to this plan, she argues, Hewlett and the other merger opponents have offered nothing but "platitudes." As she put it at the recent Goldman Sachs Technology conference, "to simply say "no" without offering an alternative plan is to ask the people of HP to give up their vision, to put their ambitions aside and to settle for less than this company is capable of achieving."
She's made the case so persuasively she's almost convinced me she's right.
But in the end I can't come around to Carly's way -- for two simple reasons. First, as Hewlett never tires of saying, no large scale tech merger has ever come off as planned -- including Compaq's own merger with Digital Equipment Corporation in 1998. And second, PC making is, as even Compaq CEO Michael Capellas admits, a "lousy business" -- one that HP would do better to walk away from, not invest more heavily in. (For more details, see Walter B. Hewlett's Web site.)
Unfortunately, Hewlett, while an effective critic, hasn't been terribly successful in articulating a clear and compelling plan of his own -- Carly's right about that. Insofar as he has articulated one, it's this: HP should build on its strength in the printer business and more or less cut and run in PCs. This may be a more practical alternative than Fiorina's risky plan, but it's hardly an inspiring one.
HP shareholders are in a tough spot. Were I in their shoes, I would probably vote 'no' to the merger -- but not with much conviction.
Investors, though, have another choice: they can vote "Sell" -- and look elsewhere for places to put their money.
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