Carly Fiorina - one of corporate America's most powerful women - left her post as chief executive of Hewlett-Packard Co. Wednesday in the wake of disagreements with the board over strategy.
"While I regret the board and I have differences about how to execute HP's strategy, I respect their decision," Ms. Fiorina, who had also served as chairwoman, said in a statement. "H-P is a great company, and I wish all the people of H-P much success in the future."
The high-profile executive's downfall came at the end of an almost three-year decline for H-P which saw company buy Compaq Computer Corp. in 2002 to become the world's biggest personal computer maker, only to then lose the spot to rival Dell Inc.
Chief financial officer Robert Wayman - a 36-year veteran with the company -will take over as CEO on an interim basis. Patricia Dunn, an H-P director since 1998, has been named non-executive chairwoman.
Reports early Wednesday put Ms. Fiorina's severance package at $21.1-million (U.S.). In 2003, she earned a base salary of $1.2-million and $2-million in bonuses. Taking into account other payments and options, her compensation for the year rose to about $3.4-million, according to H-P's January, 2004, proxy circular.
Response to Ms. Fiorina's departure was quick and unsparing.
"She's a failure, and no one who fails is wanted," said James Glickenhaus, general partner at New York-based Glickenhaus & Co., which manages about $1-billion in assets.
"She was a woman who had the wrong ideas. She went into the PC business against Dell, and that wasn't smart. She took her hand off the throttle of the high-margin stuff [the printer business]"
However, he also said that investors tend to believe erroneously that a single person can make or break a company. (H-P shares jumped 10 per cent after Wednesday's announcement; by afternoon, they were up $1.35 or 6.7 per cent to $21.49.)
"Tomorrow, the euphoria will die down and people will have a hangover," Mr. Glickenhaus told globeandmail.com.
"Will H-P magically turn into Dell? No. H-P will not suddenly become a radically different company."
Merrill Lynch, meanwhile, upgraded its rating on H-P to a "buy" rating from "neutral," citing the potential positive impact of a new leader on the company.
"We believe a new CEO could be a catalyst for the shares, which have been a value trap given lack of investor confidence in execution and strategy," Merrill analyst Carrie Gray said in a note to clients.
"Although nothing changes overnight, there is precedent in tech for large-cap turnarounds when new management comes in, such as Motorola, Xerox, and even Apple. Who should H-P approach for the job? Our first choice would be [former Compaq chief executive officer]Michael Capellas, currently head of MCI."
Ms. Fiorina was named CEO on July 19, 1999. At the close of trading that day, H-P stock finished at $45.37. On Tuesday, the shares closed 55.6 per cent lower at $20.14.
In a conference call with analysts, new chairwoman Dunn rejected suggestions that Wednesday's surprise announcement was a "precipitous" move and said a spate of recent unflattering press reports also didn't factor into the decision.
"The board has been deliberating on company performance and CEO performance for quite some time," she said.
"We've had a number of meetings, and we've been assisted by a number of advisers."
"The differences really come down to the board's view that Carly was brought in to catalyze a transformation of Hewlett-Packard," Ms. Dunn said. "She did that in a remarkable fashion. She executed the merger along with her management team in a superior fashion.
"Looking forward, we think the job is very reliant on hands-on execution, and we thought a new set of capabilities was called for."
The company will start its search for a full-time CEO right away.
H-P is scheduled to release its first-quarter results on Feb. 16. The company said Wednesday it expects to the results to be in line with analysts' forecasts.
Ms. Fiorina, 50, was the driving force behind H-P's controversial acquisition of Compaq Computer Corp. in 2002, managing to overcome fierce resistance from shareholders and directors.
Since then, however, the benefits of the deal have been questioned, and the progress of the company has been punctuated by reports of an often stormy relationship between Ms. Fiorina and H-P's board over corporate direction.
Last month, The Wall Street Journal reported that company directors were looking at the possibility of reorganizing H-P's management in a move that would shift some of Ms. Fiorina's responsibilities to other executives.
Ms. Fiorina - whose efforts also included centralizing H-P's operations by paring the company's 80-plus business units down to a fraction of that number - subsequently downplayed those reports at a World Economic Forum in January, describing her relationship with H-P's board as "excellent."
At the same time, she defended the Compaq deal - the subject of a Fortune magazine article headlined Why Carly's Big Bet Is Failing - saying that there are a "lot of opinions" about that move.
"Opinions are opinions, and fact are facts," Ms. Fiorina said, according to published reports at the time of the session.
"The facts are clear: since the merger, our competitive performance has improved in every dimension - and that is market share, revenue growth, cash flow from operations and profitability."
The Fortune article, however, argued that H-P investors had paid $24-billion in stock to buy Compaq but got little in return. It suggested the company could be forced to write off a piece of the $14.5-billion in goodwill assets resulting from the deal. As well, the article said healthy operating margins for 2003 on the H-P's computer operations - set out in two companies' merger proxy - didn't emerge that year or the next.
Fortune argued that only H-P's trademark printing and imaging business "kept the company looking respectable."
In last year's fourth quarter, PC market leader Dell distanced itself from No. 2 Hewlett-Packard by posting 21.1-per-cent growth compared with 9 per cent for HP, according to figures provided by International Data Corp. H-P had been on top in the fourth quarters of 2003 and 2002.
IDC also said Dell boosted its market share to 17 per cent in the fourth quarter, compared with H-P's 16 per cent. In the same quarter a year ago, H-P had the top spot at 16.6 per cent compared with Dell's 16 per cent.
John Challenger, chief executive of outplacement firm Challenger, Gray & Christmas Inc., said Ms. Fiorina's departure also highlights the difficulties of merging two different corporate cultures.
"It appears that the old guard, led by the Packard family, which lost the battle on the Compaq merger three years ago, came back and won the war," Mr. Challenger said.
"The biggest challenge for Hewlett-Packard will be finding someone to replace Ms. Fiorina. Under normal circumstances, CEO searches can take several months."
In this case, he added, "we are talking about finding someone who is willing and able to step into a high-profile position, following in the footsteps of a very high-profile chief executive."
Born Cara Carleton Sneed in 1954 in Austin, Tex., Ms. Fiorina joined H-P in July, 1999, as president and CEO. She added chairwoman to her title a year later.
Fortune listed her as the most powerful woman in business for six years running until 2004, when the ranking went to eBay Inc. CEO Meg Whitman.
Before that, she spent nearly 20 years at AT&T and Lucent Technologies Inc.
Ms. Fiorina holds a bachelor's degree in medieval history and philosophy from Stanford University; a master's degree in business administration from the Robert H. Smith School of Business at the University of Maryland at College Park, Md.; and a master of science degree from MIT's Sloan School, according to a biography on the H-P website.
Rating agency Standard & Poor's said Wednesday's decision would have no impact on H-P's rating, although it noted the move does suggest an "increasingly active governance posture" on the part of H-P's board.
"Standard & Poor's expects the board to maintain the right balance between oversight and management," the agency said.
With files from Martin Cej
Terry Weber