Less Is More At Hewlett-Packard - Forbes.com

Less Is More At Hewlett-Packard - Forbes.comComputer Hardware & Software
Less Is More At Hewlett-Packard
Lisa DiCarlo, 07.15.05, 2:31 PM ET

Hewlett-Packard's board of directors has claimed that in firing former Chief Executive Carly Fiorina, the company had the right strategy but the wrong execution. We'll find out if that's true next week, when the company reportedly plans to lay out the details of a restructuring designed to pare costs and shore up its market share in key segments.

The restructuring will reportedly include layoffs of more than 10,000 workers. The company, which closed its acquisition of Compaq in May 2002, has about 150,000 workers worldwide. Its architect is Mark Hurd, who was hired as CEO after HP (nyse: HPQ - news - people ) fired Fiorina for failing to deliver on her ambitious growth plans for the company. At the time, HP's board insisted that the problem with HP wasn't strategy but follow-through on strategy. That may be true, but Hurd has already undone one of Fiorina's major strategic moves in an effort to right the ship.

In mid-June HP separated the PC and printing divisions, which were merged under Fiorina only in January. HP did not provide details of the rationale behind separating the groups, but the company clearly feels that its cash cow--imaging and printing--needs to stand on its own under executives who can focus on the one category. HP's PC business has struggled, as most PC businesses have, against the superior efficiencies of Dell (nasdaq: DELL - news - people ). IBM (nyse: IBM - news - people ) finally cut bait earlier this year and sold its PC business to China's Lenovo.

If Fiorina's strategy was so sound, as the board says, then why is one of Hurd's biggest challenges to bring HP's out-of-whack costs in line with the industry? After all, Fiorina sold shareholders on the Compaq acquisition in large part by emphasizing cost savings. But in May, in discussing HP's second-quarter results, Hurd said that the "overall performance leaves room for improvement in many of our businesses" and that HP's costs were "off benchmark in many areas." Under Hurd, HP has already made senior management changes that will change the direction of the company. Last week it hired away Dell's chief information officer, Randall Mott, to be its senior vice president and CIO. He will report to Hurd and have a seat on the company's executive committee. Under Fiorina, several key executives fled to join rival companies, including EMC (nyse: EMC - news - people ). That particularly stings, because data storage, a multibillion-dollar industry, has been a weak spot for HP.

In early June HP promoted Cathy Lyons, a 26-year company veteran, to executive vice president and chief marketing officer. She took over the CMO job from Mike Winkler, who will continue to run HP's customer solutions group.

Even without any details, Wall Street is generally bullish on an HP restructuring. Its shares are trading up 34 cents to $24.96. S.G. Cowen, in a research note, says head-count reductions offer the potential for upside to its current earnings estimates for 2006 and 2007. Layoffs offer an almost immediate boost to the bottom line, but will do nothing to fix HP's problems.

Hurd, and HP's board, have to wonder whether in fact they have had the right strategy in place.