HP Tripped Up By False Expectations

PALO ALTO, Calif. (AP) â€” This is the beginning of Chapter Two in the rebirth of Hewlett-Packard Co. <br><br>HP, a hefty Silicon Valley institution that failed to capitalize on the beginning of the Internet

Monday, November 20th 2000, 12:00 am

By: News On 6

PALO ALTO, Calif. (AP) â€” This is the beginning of Chapter Two in the rebirth of Hewlett-Packard Co.

HP, a hefty Silicon Valley institution that failed to capitalize on the beginning of the Internet wave, streamlined over the past year and rebranded itself as a nimble provider of everything the new economy could want â€” hardware, software, services. New CEO Carly Fiorina reaped praise.

Then after spending all that time raising expectations, Hewlett-Packard was tripped up by them last week.

Fourth-quarter earnings rose 21 percent, but fell short of analysts' predictions by a dime per share. HP's stock price sagged below $40, down from $77.75 in March.

A contrite Fiorina took responsibility, admitted getting too caught up in negotiations â€” now scrapped â€” to buy the PricewaterhouseCoopers consulting company, and promised better results next time.

But while the announcement was anticlimactic after months of HP hype, Fiorina's revolution is far from over.

Many analysts said they expect HP's revenue to grow solidly, if not spectacularly, and pointed to the January rollout of HP's ``Superdome'' servers for corporate computer networks. HP hopes to wrench the lead in that $25 billion market from crosstown rival Sun Microsystems Inc.

``We're very impressed with the technology behind Superdome,'' said Dale Kutnick, CEO of the META Group, a research firm in Stamford, Conn. ``We think they'll be able to challenge Sun.''

Fiorina came to HP in July 1999 from an executive post at Lucent Technologies Inc. and souped up the engine in the 61-year-old company, long known for its deliberate and analytical style.

She consolidated organizations and led an aggressive ad campaign to get HP back into popular culture. Computer and printer sales soared.

Fiorina also encouraged her 80,000 employees to be more concerned about outside perceptions, videotaping her meetings with customers about how HP is doing and showing them to her staff.

``I think it's very clear to everybody in HP that we want to play to win,'' said John D. Brennan, vice president of corporate strategy and planning, who requires all divisions to be No. 1 or No. 2 in their categories or at least have a plan to get there. ``We're turning up the clock speed in this company. Decisions are getting made faster.''

HP has big expectations for the Superdome servers, which are designed to run high-end corporate databases and Web sites on the UNIX operating system. Analysts estimate Sun holds 31.5 percent of that market, with HP near 25 percent and IBM Corp. 19 percent.

``The Superdome needs to be a home run for HP,'' said Jean S. Bozman, research director for the International Data Corp. server group. ``This is really a threshold, watershed kind of thing.''

HP contends Superdome will be more advanced and have more options than Sun's E10000, which has been out since 1997 and is due for an upgrade sometime next year. Superdome will be available with 64 processors, matching the top-line E10000.

``Sun is living on borrowed time, with legacy technology,'' said Mark Hudson, HP's marketing manager for business-critical computing. ``They're getting very arrogant.''

Shahin Khan, Sun's vice president of marketing system products, scoffed at the notion that the new HP is a tougher competitor and said Superdome is merely catching up to servers Sun has had for years.

``I'm most amused by their comments,'' he said. ``Their cosmetic makeover is, in my view, insufficient to make them nimble and agile. I think they've got ways to go.''

Bozman noted, however, that HP was offering better customer support and packages of services with Superdome.

Many analysts, meanwhile, applaud news that Fiorina had dropped plans to acquire PricewaterhouseCoopers.

The deal would have cost as much as $18 billion and might have been an awkward fit. If the consultants had advised their clients to buy HP products, their credibility would have been questioned; if they suggested products from HP's competitors, that would have diminished the firm's value to HP.

HP next will likely try to buy a much smaller consulting firm to buttress its expanding services division, which would confirm Fiorina's rejuvenation plan is still on track.

``I think expectations were too high, too fast,'' said Kutnick of the META Group. ``It's too early to make a judgment on Carly. She's put in place a strategy, and ... you need 18, 24 months before you can even take a temperature, before you can even see how it's working.''

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On the Net:

http://www.hp.com

http://www.sun.com