In March when
announced it would actively seek a new CEO to replace Lew Platt, Wall Street responded positively in the belief that an outside candidate would bring fresh energy to the company. After all, the embattled Platt has spent much of the last three years telling analysts why the company had more often than not missed earnings expectations.
H-P insiders also sought outside leadership to inject fresh ideas. "The first instinct I had was that we should go outside
for a new CEO," says H-P Computing Products CEO Duane Zitzner, who turned around H-P's beleaguered PC division.
But things have changed dramatically. H-P's stock, after almost three years of stagnancy, is showing signs of a rebirth. It's up 31% year-to-date, significantly better than its peers, including the PC industry's bedrock
, which is down 9% in 1999. On Thursday, Dell fell 5/16 to 33 3/16 while H-P climbed 1 11/16 to 91 7/16.
Platt's demeanor has brightened considerably recently and he seems much more confident in the course he has set for the company's future, a plan that highlights H-P's Internet services capabilities. At Wednesday's semi-annual analyst meeting in New York, he said the company has a "damn good" vision for the company going forward. It now seems as if signs point to an internal candidate rather than someone from outside the Palo Alto, Calif.-based company.
H-P already is well under way in terms of reorganizing -- something it promised anxious shareholders it would begin late last year. Platt says it will cost the company $200 million to spin out its Measurement division as part of its reorganization plan. The division -- temporarily saddled with the ungainly name of "NewCo" and responsible for 8% of the company's total revenue -- is expected to become a separate entity this fall.
Despite anemic revenue growth, H-P has beaten quarterly earnings expectations for four quarters in a row. Whether or not H-P's E-services strategy is its long-term salvation for strengthening revenue and earnings growth is still very much a question mark. But it appears as if Platt isn't so sure he wants to watch an outsider embark on a wholly different plan than e-services. "I hope that the new CEO doesn't throw our vision out the window," said Platt, who heads the executive committee's search for a new CEO.
"I could be sticking around as a non-executive chairperson or I could be fishing in Montana," Platt told analysts. Based on his hands-on approach to activities this week, it seems as if the charged-up executive is siding with the former.
As one of a number of longtime H-P executives promoted from within, Platt seems hesitant to alter this tradition set up over the years by Bill Hewlett and David Packard, says one H-P executive who requested anonymity.
Time is growing short: H-P expects to select a new CEO in the 30 days, according to Jeff Christian, a specialist recruiter leading the CEO search for
Christian & Timbers
, a Cleveland-based executive recruiting firm. "We are making excellent progress and zeroing in a handful of strong candidates on a global basis," says Christian, who notes he is interviewing both external and internal candidates. The top internal candidates are Ziztner and H-P Enterprise Computing Solutions CEO Ann Livermore, who is heading the company's heavily promoted e-services initiative.
Zitzner was diplomatic when asked about the CEO question, saying he felt he was capable of doing the job. He has even mastered CEO-speak. "I'm comfortable with analysts' estimates for revenue growth in the low double digits for our second half," he said recently, sounding a bit like a chief executive. H-P's fiscal year ends in October.
Livermore, who declined to comment on the CEO question, seems to be a more likely internal candidate. She heads the company's services division and
passed an early initiation test this February when she spoke to money managers at
Goldman Sachs' Technology Symposium
. Livermore's division accounts for around a third of H-P's revenue. "My bet is on Ann," says a senior H-P executive, who spoke on the condition of anonymity.
If H-P does decide to stick with its initial instincts and look outside the company, the top candidates include:
Paul Otellini and, if H-P has a change of heart, former company No. 2 Rick Beluzzo of
. Beluzzo, who some say was in line for the top spot at H-P because he was considered something of a
visionary, angered officials when he left last year to head up SGI.
Whomever the executive committee picks, the future of Platt's strategy still hangs in balance. Even despite the recent surge in stock price, many analysts are concerned that Platt's ideas may not be radical enough. After all, Platt has been an H-P employee since 1966 and in the past some analysts have wondered whether he was too rooted in H-P's culture to keep up with these hurly-burly times. "I think H-P is playing catch-up with its new e-services strategy," says Don Young, a
analyst who rates H-P a neutral. His firm has done no H-P underwriting.
Platt has made each of his four division heads -- Zitzner, Livermore, InkJet's Antonio Perez and LaserJet's Carolyn Ticknor -- CEOs in their own right. Whether this is a test run for the H-P CEO crown, or a way to make room for an outside candidate is still unclear. There also are a number of financial hurdles the company will encounter in its second half. H-P only had year-over-year revenue growth of 2% in its first two quarters, and will need to boost this significantly in the third quarter while at the same time maintaining profit margins. Management said Wednesday it was lowering its operating margin target from 10%-11% to 9%-10% to help do this.
Ultimately, even if Platt chooses an internal candidate, external events such as pricing pressures from low-end PC and printer players as well as Y2K fears will go a long way in determining Platt's legacy.