The Lowdown: This HP sauce is delivered by your best friend's mum

She pulled off an IT mega-merger. Now Carly Fiorina outlines her latest strategies to Stephen Pritchard
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The Independent Online

Meeting Carly Fiorina is rather like meeting a friend's mum. There is something about the way she dresses (smart, sober and formal) and her manner (courteous, welcoming but controlled) that puts you on your best behaviour. If it wasn't for the soft Texan accent, you could be taking tea in the Home Counties.

Fiorina, though, has now been chief executive of HP, the Californian computer and technology giant, for just over four years. In that time she has carried off one of the most audacious corporate deals in the technology sector, merging with rival Compaq. In a business where most mergers and takeovers fail to bring the desired result, Fiorina is credited with achieving the near impossible. Pre-merger, the analysts Forrester Research described HP and Compaq, as independent companies, as "destined for mediocrity".

Now, since the merger, the company is challenging, and in many cases beating, its competitors, Dell and IBM. Its shares have performed well - up 91 per cent over the past 12 months - despite the most recent quarterly results, which Fiorina admits are disappointing.

HP used last week's Telecoms 2003 show, in Geneva, to expand its range of mobile products, from new handheld and laptop computers, to computer systems aimed at mobile and fixed-line telecoms operators. At the low end, the company emphasises ease of use and better security; at the high end, the stress is on cost savings and a move away from paying upfront for hardware and software to paying for computing as a utility, which HP calls "Adaptive Enterprise".

The concept of "pay as you go" for computing appeals to capital-constrained telecoms companies; it also fits neatly with the way most telecoms companies sell their own services. The fit is not accidental. Telecommunications has been an important sector for HP for more than 25 years, and Fiorina herself spent 20 years in the industry, at AT&T and Lucent. But there is still some way to go, she believes, before buying IT resources is as easy as paying for a phone call.

"That will take a long time still," she says. "Utility data centres are certainly the way forward and we have installed them in our own company, but it will be about providing [computing] capacity inside the enterprise first. Not all the technology exists yet."

Investment in this area is critical for HP if it is to differentiate itself from Dell and compete head to head with EDS, the Texan computer services group and, especially, with IBM. Already, HP has won significant outsourcing contracts, including deals with Procter & Gamble, Ericsson and Bank of Ireland. Two years ago, before their merger, HP and Compaq would have been lucky even to make the shortlist for contracts of this scale. HP was ranked eighth in the world for services and Compaq ninth.

"We are currently third in services, but it is a very fragmented market," says Ms Fiorina. "IBM's market share is only 9 per cent. There is a lot of opportunity there: our growth trajectory is faster than IBM's, in percentage terms, and we make more money."

HP, Fiorina maintains, also has a different approach. IBM and EDS, she says, see outsourcing as about people, but: "We think about the services business as a technology business, not a people business. When we take on a services engagement with customers, it is our job to take complexity out of the business, not just to throw bodies at a problem. That is a huge difference between us and our competitors. We have a third fewer people in our data centres."

This also explains why, so far, HP has resisted buying a professional services or consultancy firm, even though IBM has enhanced its services capability by buying PWC Consulting (a company HP was planning to buy before the Compaq deal).

"I could have bought PWC Consulting at a lower price two weeks before IBM," says Fiorina. "I had been offered it seven times, but I walked away. We think the partnership model works best. There is still a lot of overcapacity in the consulting business, and many customers are uncomfortable buying from a single, monolithic company."

Certainly, Fiorina believes that the day of the homogeneous, vertically integrated IT company has passed. Instead of competing with Intel, HP co-operates with the chip maker on new designs; HP is also a close ally of Microsoft. For Fiorina, this is the key to leveraging her company's research and development spending, currently running at $4bn (£2.4bn) a year. "We employ a strategy of focused innovation," she explains. "We innovate where we can make a unique contribution - we set ourselves a high bar. Elsewhere we partner. We don't compete with Intel; IBM does. We don't compete with component manufacturers, or middleware [software] providers. We leverage the massive R&D from our partners."

There are, though, question marks over HP's strategy. In its third-quarter results statement, Fiorina singled out personal computers, and the desktop computer business in the US in particular, as a weak area contributing to a 4 per cent quarter-on-quarter fall in turnover.

But despite the weakness, the idea of leaving the PC business to commodity suppliers, and in particular Dell, is one Fiorina is quick to dismiss. Asked if she would consider abandoning PC manufacture, she gives an emphatic answer. "No. We are already competing effectively with Dell. In notebooks and mobile devices we are the market leader. Our market share in the PC business is greater than the next three players combined."

And in recent months, HP has launched more than 100 new products aimed at home or small business users.

"Our push into the consumer market for the fall and Christmas, especially in digital imaging, draws on all aspects of our portfolio," says Fiorina. "But these products will only be embraced in the home if they work better together. It's about making products that are simpler to use and to own, and provide an experience that is simple and rewarding. Too many products today are frustrating, complex and disappointing."

Her aim is for HP products to be like Fiorina herself : well presented and welcoming, but packing quite a punch.