Fiorina calls diversification key
Firm can't risk falling behind, CEO says
Benjamin Pimentel, Chronicle Staff Writer Sunday, February 24, 2002
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With just weeks to go before shareholders vote on the merger between Hewlett-Packard and Compaq Computer, HP Chairwoman Carly Fiorina is embroiled in a major battle over the deal, which could lead to big changes at Silicon Valley's most venerable company.
In an wide-ranging interview with The Chronicle last week, the 47-year-old chief executive officer discussed her campaign to win approval for the $21 billion merger, her vision for the new HP and her frustration with a much- publicized proxy fight with dissident director Walter Hewlett.
A shareholders vote has been scheduled for March 19.
The Chronicle: How many of the top institutional investors have you talked to?
Fiorina: I've seen or talked to virtually all our top 100 investors.
The Chronicle: What questions do they usually ask?
Fiorina: Different investors have different points of view. But fundamentally, people are now very focused on integration and execution. . . .
We are executing today. We are executing very well through a very difficult period, and it shows in the numbers. We have six months of integration planning under our belt. And we are approaching that integration planning in an exceedingly disciplined way. We now have 600 people planning integration full time, day in, day out. We're moving.
This merger is not driven by the downturn, but the timing of it is important. This merger is all about what it takes to lead in a consolidating industry that's being transformed. . . .
Customers aren't moving quickly right now. They're not making snap decisions to rip out infrastructure. They're going to take their time -- which gives us time.
The Chronicle: Analysts and some of your competitors are expecting the economy to pick up toward the end of the year. By then, you would still be in the process of integrating the two companies, while your competitors are all gearing up for that. Wouldn't that be risky for HP?
Fiorina: That's why it's important to have six months of detailed integration planning done, so the day this merger closes, all our product line road maps are done for three years. Why do I say that? Because we've finished them. All our go-to-market structures are done. We've finished them. All our customer reps will know what to say. Yes, you have to get an extraordinary amount of detailed planning done, so that you can hit the ground running. . . .
There are risks of not doing this deal. We as management must be focused on managing the risks of integration. It's real. I don't mean to minimize it in any way. But there are risks of not doing this deal. For example, we have 36, 000 people working in businesses that aren't making money. That's a risk.
The Chronicle: You made the same point to your employees in a meeting. Some interpreted that to be a threat.
Fiorina: It's not a threat. Business is about reality. What's real is a foundation for job preservation, for the ability to innovate and for the opportunity to contribute to the community. . . . It's not a threat, it's reality. That's why the board and management have spent the last 2 1/2 years evaluating a set of alternatives. How do we ensure that we have businesses that are healthy, that are profitable and that are leading? Because in the technology industry, leadership equals profitability. . . . If you're not leading, if you're falling behind, over time, you can't make money.
The Chronicle: Conventional wisdom says you don't try to do a merger unless you have all your ducks lined up in a row -- that you have a solid board (of directors) and have some support from institutional investors. What went wrong in this process?
Fiorina: We structured this deal in a way that good governance supports. We structured this deal without voting agreements with institutional investors. . . . This agreement had unanimous approval by the board of directors. Two months later, our opposition decided to declare they were launching a proxy contest.
The Chronicle: At what point did you know that Walter Hewlett was uncomfortable about the merger? He has been saying that from the beginning he had misgivings.
Fiorina: Would it surprise you to know that all the points, all of the objections, all of the arguments, all of the counterplans and then "I don't have a plan" and then "I have guiding principles" -- would it surprise you to know that none of that was ever brought to the boardroom, ever? Because it wasn't. Those are facts.
The Chronicle: You once said that your favorite business writer was Hegel and that you use Hegelian dialectics every day. Could there be a synthesis of the two opposing viewpoints in this proxy fight?
Fiorina: This decision is up to the share owners of this company now. I guess the reason you're sensing frustration on my part is this isn't about me versus Walter -- although it is what the opposition would like it to be.
The Chronicle: So there's no alternative here, no middle ground, no deal you could cut to pull back from this full-scale war that's going on right now?
Fiorina: And how would that serve share owners' interests, to cut a deal in the back room to make peace? It's not about cutting a deal in the back room. It's about a process of governance, good governance, that this board and management team has gone through. . . . We've looked at other alternatives. But they're not as good. And that's why we took this one to follow. If I were interested in doing something easier, you bet I could cut a deal. Do I like doing this every day? Is this fun for me? No, it's not. But it's too important.
The stakes are too high. It's not about me and Walter. It's about what's right for this company.
The Chronicle: What do you plan to do if the merger is defeated?
Fiorina: I'm not going to speculate on what I'm going to do. It's not the point.
The Chronicle: Would you resign?
Fiorina: I'm not going to speculate. What I will tell you is I am dedicated to the success of this company.
The Chronicle: If you win, how do you envision your relationship with Walter Hewlett?
Fiorina: You really don't want to talk about the substance of this merger, do you? You want to talk about the soap opera and the drama. What will my relationship with Walter be? I'm sure it will continue to be very cordial.
The Chronicle: What do you do facing forward if the merger is approved? How do you put it all back together? It's got to be harder with a merger that is a subject of controversy than when everyone is on the same page.
Fiorina: Well, everyone is on the same page with the exception of one person. Sometimes having to battle hard for what you believe in brings you closer together, not tears you apart.
The Chronicle: What kind of industry recovery are you seeing?
Fiorina: We don't have a crystal ball, and we could be wrong, but to us, recovery means maybe we will get 2 to 3 percent growth in the market this year.
So it's a pretty muted recovery.
We are the largest consumer IT company in the world now. But it (consumer technology) represents about 25 percent of our business, so three-quarters of our business is sitting in the commercial enterprise space. Ultimately, IT budgets will rebound because increasingly, it is people's businesses. . . Your business (the newspaper business) increasingly is IT. One of the reasons we have rejected as a board three times spinning out printing and imaging is because the continued growth of imaging and printing requires us to get into new markets. . . . Your industry runs on commercial printing. That process will be transformed into what we call digital publishing. It would be absolutely transformed, just as traditional photography has been transformed by digital photography. That transformation is taking what is today a very physical process and turning it into a digital process. Not only does it require great print engines, ink and toner, it requires servers, storage, network management, software and professional services. That's why we feel strongly we have to keep this portfolio together.
If all you care about in imaging and printing is growth for the next 12 months, OK, spin it out. But if you care about sustainable value -- growth for two years, three years, five years, then we've got to get into new categories like digital publishing.
Someday, when this is all over, we'll come talk to you about digital publishing . . . We'll come give you a sales pitch. (Laughs.)
The Chronicle: Silicon Valley goes through these booms and busts. What's the next big thing? The short-term scenario you seem to be describing is a slow kind of recovery.
Fiorina: Companies that can perform in good times and in bad tend to last longer. . . . The dot-com boom, if you think about it, was sort of a period of mass hysteria. I hate to use that term. People put numbers down on a piece of paper and everyone thought it must be true. The fact is real profit takes real work, real plans, real experience.
The key to sustainability is to catch all those waves. . . . That's why there's power in diversification. The company is in a lot of different businesses. Last year, at this time, people said, "God, it's terrible they're in the consumer technology business," because consumer technology spending was down. This year, people are saying, "Boy, it's great they're in the consumer technology business."
So when you're in PCs, and PCs fall off the cliff, you better be in handhelds. One of the experiences of the dot-com bubble was: Smaller and focused is better. Turned out not to be the case. If you're only in one area, it's great while it's hot. But it's really painful when it's not. (Laughs). That's the bottom line.
The Chronicle: Can you talk about how this whole thing has affected you on a personal level?
Fiorina: Well, it's hard. I love this company. I'm excited about the company we're going to build here. It is in some ways an emotional roller coaster. I go to integration-planning meetings and I get really excited. I get frustrated when all people talk about is the Walter-Carly show. I get concerned when I think about the impact of that soap opera on employees and on share owners' clarity about the decision they are being asked to make.
The Chronicle: How will you celebrate if you win?
Fiorina: Take a week off and go spend it with my family.
E-mail Benjamin Pimentel at bpimentel@sfchronicle.com. |
