Fiorina Ouster at HP May Help Dell

The ouster of Hewlett-Packard Co. (HPQ) Chief Executive Carly Fiorina (search) could boost top PC maker Dell Inc. (DELL) but hurt rivals in the market for server computers and storage machines, analysts said.

Under Fiorina, HP lost the No. 1 position in the PC market to Dell, and analysts said HP is likely to lose more market share to its archrival amid the uncertainty surrounding Fiorina's departure.

"I just think HP will end up being less committed to the PC business somehow, or maybe they will focus more on profit than on revenue growth, and that will make pricing better for Dell," said Mark Herskovitz, portfolio manager for the $2.2 billion Dreyfus Premier Technology Growth Fund, former HP shareholders.

He noted that International Business Machines Corp. (IBM) recently agreed to sell its PC business to China's Lenovo and said a new leader at HP might consider following suit.

"This has to be good news for Dell — because who's left? IBM is out of the business, basically," Herskovitz added.

Dell shares, up almost 1 percent in afternoon trade, have almost doubled in price since Aug. 31, 2001, when HP hammered out a deal to merge with Compaq Computer. HP's stock has lost 13 percent since then.

HP is trading at a significant discount to its rivals. Its price-to-earnings ratio of 13 puts it at the bottom of the 30 top technology companies that makes up the American Stock Exchange Computer Technology Index. Dell has a P/E of 32.

HP said it does not plan to break the company up but will stick to the strategy of providing a one-stop shop for computer and printer gear. But executives appeared to leave the door open to a break-up, saying they were open-minded.

Analysts said the change at HP could mean trouble for rivals in the market for server computers and storage machines, such as IBM, Sun Microsystems (SUNW) and EMC Corp. (EMC)

HP is unlikely to relinquish its more profitable server business, they said. HP trails IBM in the market of computer servers, which manage corporate systems, and is ahead of Sun and Dell.

The new HP CEO could also focus on reviving HP's stagnating storage business, posing a potential threat to EMC, analysts said.

"IBM, Sun and EMC may lose market share because HP is going to change itself into something more aggressive," said Frank Dzubeck, president of Communications Network Architects, a technology analysis firm in Washington.

IBM was off $1.35, or 1.4 percent, to $92.78, dragging down the Dow Jones industrial average. EMC declined 20 cents, or 1.5 percent, to $13.01. Sun, which is struggling to turn around its server business, fell 8 cents to $4.17.

Under Fiorina, HP turned in erratic financial results. The board, announcing her departure, said its major concern was not strategy, but execution.

"Competitors need to be worried that potentially the board can find someone who is better than Carly on execution," said Gartner analyst Carl Claunch.

Analysts expect the management transition at HP to give the company's rivals an opportunity to lure away its customers, given prospects for disruption and a potential restructuring to redo some of Fiorina's moves.

"Whenever there is a change of some significance, it always presents an opportunity for competitors to make inroads," said John Patrick, president of Attitude L.L.C., a consulting firm. "When a very visible leader departs, that always gives customers a reason to pause and provides an opportunity for its competitors to take advantage."

HP shares were up $1.39, or 7 percent, to $21.53 in afternoon trade after rising as much as 10 percent earlier in the session.

"It surprises me the HP stock is rising, because what this means is at least another six to 12 months of uncertainty and turmoil in management of the company," said Barry Randall, manager of the First American Technology Fund, which recently sold its HP stock.