July 24, 2002 6:10 PM PDT

HP board forms tech policy committee

Hewlett-Packard's board of directors has formed a technology committee to study such key issues as the company's transition to Itanium processors.

The committee will oversee some of HP's most pressing technology issues, which includes greater use of direct sales and ensuring its research work is firmly aligned with corporate strategy, a source close to the company said.

The committee was formed less than three months after the completion of HP's $19 billion merger with Compaq and held its first meeting last week.

"The technology committee will help the board look at the enablers for the merger," said the source.

HP four board members appointed to the technology committee are George Keyworth II and former HP executive Dick Hackborn, both whom were HP directors before the merger, and Tom Perkins and Lawrence Babbio Jr., former Compaq directors pre-merger.

Perkins, co-founder of venture firm Kleiner, Perkins, Caufield & Byers, suggested the creation of a technology committee and received strong support from Carly Fiorina, HP chief executive, the source said.

While such committees are somewhat unusual among large, established companies, Perkin's proposal is less surprising when considering his venture capitalist background.

An HP representative declined to comment on the committee.

"It's unusual for a large company board to create a technology committee, but it's common among start-ups that are financed by venture capitalists," said Margaret Blair, a corporate governance expert and Sloan Project visiting professor at Georgetown University. "Start-ups will often create a board that includes members from the company, their venture capitalists and several people from the industry to provide technical knowledge and be real advisors to management."

Blair, author of "Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century," also noted Fiorina's support for the technology committee may represent a smart move.

"In a way, it's a very smart and gutsy move by Carly Fiorina. It's a way to say, 'come on and take a look at what is going on.' It's a way of signaling, 'I'm not worried about any skeletons in the closet,' " Blair said, adding, "And even though there were board members who supported her in the merger, it was a bruising battle with (former dissident HP director) Walter Hewlett."

Hewlett, son of HP co-founder William Hewlett, took HP's management and fellow directors by surprise when he launched a proxy battle to oppose the mega merger with Compaq.

One subject the technology committee will scrutinize is HP's bet on Itanium, the high-end Intel processor that's the foundation for HP's entire high-end computer future and central to fending off competition from IBM, Sun Microsystems and Dell Computer.

HP is betting the chip will simplify hardware and software engineering efforts while lowering processor research expenses and just unveiled its first serious Itanium systems. Eventually, Itanium will replace HP's PA-RISC chip in high-end servers and workstations.

"The technology committee will receive input from the board as it reviews the complexity and evolution of moving HP to an Itanium architecture. Some of the issues include how fast should the transition move and some of the technological hurdles," said the source, adding it isn't known how long it will take for Itanium servers to outpace those with HP's PA-RISC and 32-bit Intel chips such as Xeon or Pentium.

Software written for Intel's 32-bit processors must be drastically overhauled to work well on Itanium, a major hurdle in moving to the processor.

HP developed the idea behind Itanium before entering into a 1993 partnership under which Intel handles most of the work of designing and building it. HP's work has given the company a financial edge over competitors besides just the extra years of design experience, the source said.

HP gets a deeper discount on Itanium processors than HP competitors, the sourse said. Because Intel doesn't pay HP Itanium royalties, that discount helps to offset some of the billions of research dollars that HP spent on Itanium, the source said.

Intel declined to comment on pricing differences among various customers.

As HP looks to manage its research and development operations, the committee also will review whether the division's plans are aligned with the company's strategic goals, the source said.

News.com's Stephen Shankland contributed to this report.

 

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