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Ex-CEO Gets Some Credit for HP Surge

Although Carly Fiorina was sacked in one of the most humbling ousters in corporate America, her initial moves to reinvigorate Hewlett-Packard Co. are now paying off in HP's healthy profit and recent stock surge.

While HP Chief Executive Mark Hurd can take responsibility for the company's financial success in recent quarters, some observers say Fiorina, who was fired as CEO 18 months ago, deserves some credit for the earnings growth that has propelled the computer maker's stock to a new yearly high.

HP shares rose 69 cents, 2 percent, to $35.12 on Thursday. They've traded as high as $36.73 in the past day, topping a previous 52-week high of $36.23 on the New York Stock Exchange.

On Wednesday, the computer and printer maker reported third-quarter profit that easily beat Wall Street expectations. Excluding one-time items, the company's profit jumped nearly 40 percent. Executives raised guidance for fiscal fourth-quarter and 2007 earnings and announced a $6 billion share buyback.

"It looked really good -- it's nice to see this consistency from HP," said Martin Reynolds, vice president of research firm Gartner Inc.

HP's health in recent quarters is a sharp contrast to the inconsistent performance of the past half-decade.

For years, HP stock badly lagged that of its fiercest rivals: Dell Inc., one of the world's most efficient retailers, and IBM Corp., the leader in technology consulting services, a lucrative niche HP wants to better penetrate.

For much of HP's 67-year history, it was considered a clubby, male-dominated and engineering-focused company -- albeit one very generous to its employees. Many workers spent their entire careers at HP, which was reluctant to lay off employees -- an exception to the peripatetic ethic that pervades Silicon Valley.

Fiorina arrived in 1999, after holding executive sales posts at Lucent Technologies Inc. and AT&T Corp. She immediately became one of the country's most powerful female executives and earned a reputation as an imperious leader, centralizing 83 units into less than a dozen.

Over the fierce opposition of the families of Hewlett-Packard's founders, she spent $19 billion to buy Compaq Computer Corp., a deal that squeaked by a shareholder vote after she tirelessly campaigned for it with investors. In the year after the acquisition, she laid off 18,000.

But questions lingered about whether the deal was delivering the benefits Fiorina had promised.

For a while Fiorina was able to spread some blame. When she learned HP would fall short of its expected quarterly profit in August 2004, she held a 5 a.m. conference call and fired three vice presidents for "unacceptable performance."

Finally, however, in February 2005, the board fired her.

Less than two months later HP tapped Hurd, a soft-spoken Midwesterner who was the antithesis of the celebrity CEO. Previously chief executive at Dayton, Ohio-based computer services company NCR Corp., Hurd seems to have improved efficiency without inspiring much antagonism. He spearheaded a cost-cutting campaign in July 2005 that, when it winds down later this quarter, will have resulted in as many as 15,000 layoffs.

"Mark brings a culture of accountability and focus and that makes all the difference in the world," said Cindy Shaw, vice president at investment firm Moors & Cabot. "Our sources indicate morale has turned 180 degrees under Mark and is now quite positive, despite headcount reductions."

In an interview Wednesday, Hurd said he spent most of his first year on the job listening to HP employees, customers and shareholders. Within weeks of assuming the helm, he realized that the company was still bloated and overly complicated. He reduced the number of executives throughout the organization, particularly in the sales divisions, where he eliminated two layers of management.

"We have fewer people who can make more decisions," Hurd said. "The feedback I got was that this is a company with great technology, great people and great services, but frankly it was hard to deal with -- there was a lot of bureaucracy."

Wall Street has loved Hurd, who took over as HP stock had been lingering around $20.

But while analysts praise Hurd's low-key style, many are quick to credit Fiorina for laying the groundwork. She was the biggest proponent of changing HP's culture, and although her hard-charging style ultimately worked against her, HP desperately needed someone like her, said Roger L. Kay, president of Endpoint Technologies Associates.

"Carly did a lot of the shaking up, which was necessary to get the hidebound organization liquefied again -- and that left the field open for Mark Hurd to reorganize. The ironic postscript here is that Carly deserves far more credit than she got," Kay said. "The idea that the organization needed to be shaken up and be less technology-centric and more customer-centric turned out to be spot on."

It's unclear how long Hurd can keep the company performing solidy -- whether for several more quarters or years. With revenue expected to exceed $90 billion this year -- giving HP the title of the world's largest tech vendor -- future growth and deeper expense reductions can be harder to come by.

Analyst Shaw Wu of American Technology Research praised Hurd for executing Fiorina's strategies and "taking it to the next level." But Wu believes HP's stock price suffered a "Carly discount" under her tenure because of investor antagonism. Now it may be overvalued, Wu said, because of a "Mark Hurd premium."

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