March 7, 2002 1:45 PM PST
Fiorina: Execution key to merger success
Speaking from the company's headquarters in Palo Alto, Calif., Fiorina touched on such topics as executing on the $22 billion merger and the timing of the tech industry's economic recovery. She also noted that HP has already completed a three-year product plan that it will share with customers on April 1, assuming shareholders approve the merger.
"The biggest risk of the merger is not strategy, but execution," Fiorina said. "But in the last six months, we have executed (on our financials), and that should give our investors some comfort."
On Feb. 13, HP reported pro forma earnings of 29 cents per share, slightly better than analyst expectations of 25 cents. The company attributed the results to strong sales of consumer products.
The good news was a departure from previous quarters: In the fourth quarter of 2000, HP missed earnings estimates. It went on to issue warnings during the first three quarters of 2001.
"We mis-executed in the fourth quarter of 2000, and I took responsibility for that," Fiorina said Thursday. "But in 2001, we performed quite well against other companies in our industry...and were one of the few profitable companies each quarter--and with lower accounts receivable and inventory."
Fiorina said that to improve its chances of executing post-merger, HP has completed a three-year plan for all its products. She said if the merger is approved, the company will share details of the plan within days of the shareholder vote.
She declined to elaborate on all of the plans, but said HP's crown jewel, its printing and imaging business, will definitely remain in the mix--despite calls by dissident board member Walter Hewlett to consider spinning off the lucrative business as a way to unlock shareholder value.
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"It makes no sense," she said, "because...digital imaging and publishing require using PCs, servers and storage"--other parts of HP's business.
HP and Compaq announced their merger plans last September, but the proposed marriage has received a lukewarm response on Wall Street and has been bitterly opposed by Hewlett, who complains that HP's lucrative printing business will be diluted by Compaq's low-margin PC business.
Among the other issues that Hewlett has raised in the proxy battle is that Fiorina and Compaq CEO Michael Capellas at one point stood to make a combined windfall of $115 million in the event of a successful deal. Hewlett has argued that any executive compensation package should be disclosed to shareholders before the vote.
But Fiorina affirmed Thursday that the compensation terms were not formally approved and that a new, combined board will take up the issue. Fiorina also noted that she will have to hit performance targets much higher than previously disclosed to receive her bonus.
And what are Fiorina's personal plans should the merger fail a shareholder vote? "I refuse to speculate on it because it's not useful," she said.
On macroeconomic issues, Fiorina said that a recovery for the tech industry may lag behind the overall economy.
Economic forecasters, such as Federal Reserve Chairman Alan Greenspan, have recently said the economy appears to be pulling out of a recession, but Fiorina expects the technology industry will not experience any growth in IT spending until the second half of this year.
"CEOs are quite cautious," she said. "In my view, the IT budgets may lag the economic recovery...In the late 1990s and early 2000, people spent a lot of money in a hurry" on IT, Fiorina said. "The big project for a lot of our customers is finding ways to consolidate their servers."