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Palace intrigue at Hewlett-Packard

CNET's Michael Kanellos says ongoing internal shuffles speak volumes about what's still wrong at HP.

Will the merger between Hewlett-Packard and Compaq Computer ever stop being so entertaining?

A series of executive departures in the past few weeks demonstrate that the $19 billion merger remains a work in progress, two years after it was first announced.

Last Tuesday, Jeff Clarke--the former Compaq chief financial officer who helped engineer the merger--suddenly resigned by "mutual agreement." Really? Only three weeks earlier, his employer had touted him as an example of a valued Compaq alumnus HP had worked hard to retain. Earlier in November, Webb McKinney, the other half of the integration team and one of HP's most respected executives, announced he was retiring.

Other departing executives include Susan Bowick, a 26-year HP veteran and former head of human resources, and Mary McDowell, who ran the Intel server group. In the previous months, a number of high-ranking server and storage executives departed for parts unknown.

On one level, all of these changes can be seen as independent events. Both McKinney and Bowick had been employed there for more than two decades. McDowell got an offer to become senior vice president and general manager of enterprise solutions at Nokia, a position that seems to hold more potential than her former, somewhat opaque position of senior vice president of strategy and corporate development at HP.

In addition, Hewlett-Packard is in the midst of making massive

On another level, these departures could be seen as a sign of a company in flux.
layoffs. Thousands of engineers, product managers and support staff have been cut. It's about time some high-ranking executives got released.

On another level, these departures could be seen as evidence of a company in flux. History abounds with such examples. After Compaq bought Digital Equipment in 1998, it, too, tried to integrate many of Digital's executives and product teams into the company's operations. But combining the two took longer than expected. Meanwhile, Compaq ran into financial trouble. Throw in a bruising price war and, voila--14 months later, CEO Eckhard Pfeiffer was ousted, along with a whole gaggle of other execs. Another reorganization followed, but it was too little, too late. Two years later, Compaq got swallowed up by HP.

Similarly, concerns about Sun Microsystems' future intensified after a number of senior executives departed in 2002. Management said the changes were all routine, but the seeds of suspicion had been planted. Sun's mounting losses and shrinking market share only fed the rumor mill that something was amiss.

By comparison, Dell and Intel are veritable feudal kingdoms: No one ever leaves.

HP has argued that it acted quickly to assimilate Compaq's work force and businesses, and that the results show that its moves have paid off. In the final fiscal quarter of 2003, the merged company reported net income of $862 million. The company also managed to cut into Dell's lead in worldwide PC shipments in the third quarter, according to research firm IDC.

By comparison, Dell and Intel are veritable feudal kingdoms: No one ever leaves.
But the comparison to Dell doesn't tell the entire story. The Round Rock, Texas, PC maker is still No. 1 in PCs and is expanding into HP's printing turf.

The problem is that a lot of energy that otherwise could be deployed to win new customers gets sucked into palace intrigues. Some start worrying about preserving their own position, while others try to exploit the chaos in order to move up. In a lot of ways, HP is sort of like the "new" Nixon White House. It made for great TV drama and turned drab political advisors into celebrities, but the result wasn't what they were hoping for.

In the end, HP won't be able to declare victory until people lose interest in its inside moves.