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Where Will Carly Fiorina Take HP?

Back in 1996, Carleton S. Fiorina vaulted into the spotlight of what was being called the communications revolution by leading the spin-off of AT&T's (T) 120,000-employee equipment arm, Lucent Technologies (LU). To Fiorina, telecom equipment wasn't boring backroom stuff but rather the foundation of the Digital Age. Her marketing savvy, energy, and single-minded conviction persuaded investors that she was right -- and those qualities helped make Lucent that year's most successful IPO.

Lucent raised $3 billion -- $300 million more than anticipated. By the end of the year, the stock was up 92%. "Watch us now," Fiorina challenged investors in the final days of the IPO road trip to promote Lucent's prospects. The world took her at her word: Since then, Fiorina has been the most watched woman in business.

NEXT JACK WELCH? Now, four years into her tenure as CEO of Hewlett-Packard (HPQ), Fiorina is more prominent than ever. Last year, her plan to "reinvent" HP by merging it with Compaq to form an $87 billion tech powerhouse prompted a vicious proxy fight headed by none other than Walter Hewlett, son of one of HP's heralded founders. After months of cool, persistent persuasion by Fiorina, even in the face of her opponents' mudslinging, she emerged victorious when the votes were counted in the spring of 2002.

As that outcome made clear, Fiorina has a knack for winning the prize. One key is her skill at boiling down complex ideas into simple ones. As a student of medieval history at Stanford University, she distilled hundreds of pages of religious writing into crisp, two-page abstracts, according to a recent book: Perfect Enough: Carly Fiorina and the Reinvention of Hewlett-Packard by George Anders. She even helped devise Lucent's logo -- a speedily drawn red circle with streaks of white, meant to convey a company blazing into the digital future. So forceful and accomplished is she, according to Anders, that former HP chairman Dick Hackborn once said: "She could be the next Jack Welch."

For all the praise, though, there also has been disapproval. Fiorina's successes at AT&T, where she spent two decades rising through sales and marketing positions, revealed a determined, goal-oriented, and "ruthless when necessary" woman, according to another recent book, Backfire: Carly Fiorina's High-Stakes Battle for the Soul of Hewlett-Packard by BusinessWeek reporter Peter Burrows. And controversy has followed many of her triumphs, notes Burrows. Take Lucent, whose spin-off was perhaps Fiorina's biggest single achievement at AT&T. Within months of her departure, its sales collapsed. The outfit is only now starting to recover, after laying off more than half its employees.

GENDER ISN'T AN ISSUE. Throughout Fiorina's career, she has been unable to escape the chatter of those who imply that her gender affects her performance as a manager. For instance, she's constantly asked whether being a woman alters the way she runs HP or the way her peers -- nearly all of them men -- deal with her. She fielded the question as recently as Apr. 28 on cable news channel CNBC -- and with customary aplomb declared that her sex is irrelevant: "I have to do the job I've been asked to do to the best of my ability."

Slowly, the focus does appear to be shifting. Fiorina's gender is becoming a sidebar to the central debate over whether she has the right vision for the Silicon Valley legend she now controls. "Mercifully, the discussion has turned to more substantive issues," says Donna Hoffman, professor of management at Vanderbilt University. So far, Fiorina has wrung $3.5 billion in annual costs out of the combined company, about $1 billion more than she promised before the merger.

Doubters point out that subtracting costs is easier than adding revenues. "If you look at HP's numbers in a little more detail, the quality of earnings is not as good as you think," says Thomas Wang, a Fiduciary Trust technology analyst. He fears that HP "might have to come up with additional cost cuts." Sales were essentially flat in the most recent quarter -- at $18 billion, vs. $18.2 billion a year ago. "Revenue growth will be the true test of how the merger works out," says Len Rosenthal, finance professor at Bentley College.

THE EARNINGS TEST. As the economy recovers, Fiorina will have to show that HP can fend off fierce competition from Dell Computer (DELL), which is fast becoming a threat in many of HP's markets. "Dell has a better business model, and IBM has better relationships" with customers, says Robert Lamb, a professor at New York University's Stern School of Business. Dell in particular has its sights set on HP's crown jewel: printers. Fiorina has to keep a "competitive lead on the printer business. Otherwise, she's in trouble," Rosenthal notes.

Getting the Compaq merger approved was a grueling test that Fiorina passed with solid marks. So far, the new outfit isn't the dud many critics predicted it would be. And in coming years, observers expect that she'll focus her considerable talents on making HP grow again." It's such a great challenge for her," says Vanderbilt's Hoffman. "Who would walk away from that?" Not Fiorina. By Amy Tsao and Jane Black in New York

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