The company, based in Palo Alto, California, confirmed the shake-up and named its chief financial officer, Robert Wayman, as its interim chief executive officer. Patricia Dunn, believed to have pushed for Ms Fiorina's removal, will become non-executive chairman of the board.
It is a stunning humiliation for Ms Fiorina, 50, who staked her reputation on the severely contested acquisition of Compaq. While that deal, worth $19bn (pounds 10bn), has been deemed a failure, Ms Fiorina appears also to have been targeted for failing to execute HP's diversification plans. Under her watch, the firm has lost ground to Dell in the PC business and to IBM in selling servers.
Wall Street was pleased by the change, pushing HP shares up by more than 5 per cent in morning trading in New York. Analysts noted that morale at the Silicon Valley giant had been low and that speculation had peaked last month that the board was at least manoeuvring to reduce Ms Fiorina's influence. That it decided to push her out entirely nonetheless took most people by surprise.
"While I regret the board and I have differences about how to execute HP's strategy, I respect their decision," Ms Fiorina said in a brief statement. "HP is a great company and I wish all the people of HP much success in the future."
The acquisition of Compaq was meant to give the company sufficient scale in the marketplace to contend with challenges from rivals like IBM and Dell. Digesting the PC maker proved much harder than anticipated and HP's stock has floundered, and had spiraled to $20 a share, before yesterday's announcement, from previous highs of about $70 per share.
After 20 years in the hi-tech sector with senior positions at AT&T and Lucent Technologies, Ms Fiorina, who studied philosophy and medieaval history at Stanford University, was plucked by HP in 1999 to lead it into the 21st century. She became the head of a company that now has $80bn annual revenue and is the 11th largest in the US. Her star seemed to shine even brighter a year later, when the HP board made her not only the company's CEO and president but also its chairman. No woman in the history of US business had reached such heights, holding all three titles at once at a top corporation.
Her tenure has had some success. Profits and revenues have soared during her years at the helm. In November, HP reported fiscal 2004 net income of $3.5bn, up 38 per cent from 2003, while revenue at $80bn was up 9 per cent. Yet HP's ambitions to go beyond its heavy dependency on printers and ink to become a Silicon Valley computing and consulting powerhouse are still stuck in slow mode.
But her fate may have been sealed when she proclaimed her intention in 2001 to absorb the Texas-based Compaq. The move was opposed by some important shareholders and members of the board, most notably including Walter Hewlett, the son of HP's co-founder, Bill Hewlett.
Critics of the deal argued that Compaq would place too much of a burden on the company and detract attention and resources from its existing assets, in particular its dominant printer division. While Ms Fiorina won the argument over the merger, the margin of victory among shareholders was very narrow, possibly too narrow for her sensibly to have gone forward with it.
In a conference call to analysts, Ms Dunn refused to offer specific reasons for the reshuffle. "We thought a new set of abilities was called for," she said. But apparently questioning the ability of Ms Fiorina to execute the board's chosen growth strategy, she said: "We are looking to accelerate the growth of the company and we think that requires hands-on execution."
Among analysts critical of Ms Fiorina was Peter Sorrentino, the chief investment officer at Bartlett & Co in Cincinnati. "HP has never had a cost-effective model in terms of the PC business, they've frittered away their lead in imaging, and their move to services never really panned out, even with the addition of Compaq."
Nor was she always popular with her employees. Editors on Forbes.com recalled the tide of e-mails from unnamed HP employees during the battle for Compaq. One said: "Carly Fiorina has lost the people of HP. She is reviled, despised and unwelcome in the company. The vast majority of HP people wouldn't follow her to a new restaurant, much less through a gut-wrench merger."
The company said yesterday it would start an immediate search for a permanent CEO to take over while Mr Wayman keeps the seat warm. Names being mentioned include Michael Capellas, the former CEO of Compaq at the time of the merger. He is currently head at MCI communications.
It was also thought that HP will take the opportunity with its new leadership to reshape its strategy, possibly with a spin-off of its printer division to concentrate on developing high-margin new technologies.
Outlook, page 47
IT WAS NEVER GOING TO BE EASY
What Carly Fiorina, left, said in December 2001 as she faced opposition to her plans to combine with Compaq:
"I knew that coming in as an outsider and moving a 60-year-old company with a grand heritage, and all the crosscurrents that implies, was not going to be easy."
What she said yesterday after stepping down:
"While I regret the board and I have differences about how to execute HP's strategy, I respect their decision."
What Patricia Dunn, the new non-executive chairman of the board, said yesterday:
"Looking forward, we think the job is very reliant on hands-on execution, and we thought that a new set of capabilities was called for."
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