Carly Fiorina, CEO of Hewlett-Packard

This is a partial transcript from Your World with Neil Cavuto, February 26, 2002. Click here for complete access to all of Neil Cavuto's CEO interviews.

NEIL CAVUTO, HOST: Get a load of this: The sons of the founders of the company are blasting her. Some institutional investors are deserting her. And some oh-so-smart Wall Street analysts are questioning her. But, in case any of them thought Carly Fiorina would be buckling, think again.

Hewlett-Packard's earnings are up, a lot, and the prospects for that much talked about merger with Compaq are up a lot, too. Joining us now, the chief executive of Hewlett-Packard company, Carly Fiorina. Ms. Fiorina, good to have you.

CARLY FIORINA, CEO, HEWLETT-PACKARD (HWP): Well, great to be here. Thanks.

CAVUTO: Handicap if for me now. How does it Compaq (C) thing look?

FIORINA: Well, you know, actually it is illegal for me to predict the outcome of a vote.

CAVUTO: That's true. That's true.

FIORINA: But I would say that we feel good about the momentum we have. We feel good about our shareowners` increased understanding of the merits of this case. And we think on the merits of the case, shareholders will vote with us.

CAVUTO: All right. Now, all you need is 51 percent, when all is said and done, right?

FIORINA: That's correct.

CAVUTO: Now, you know, you get occasionally some groups that come out and say no, but the biggest was when the sons of the founders, the Hewlett and Packard foundations, respectively came out against this. That was almost a fifth of the votes you needed gone.

FIORINA: Eighteen percent. But we have 82 percent of our shareowners who still have to vote. And this really is about what is best for our shareowners, all of them, the rest of the 82 percent that haven't voted who have a real voice in the future this company. It is best for the employees of this company. This is a vote for market leadership. It is a vote for improved profitability and cashflow. And it is a vote for a very thorough, deliberate, comprehensive process that has been undertaken by an independent board of directors over several years.

CAVUTO: There are still a lot of people, Ms. Fiorina, that have a look at this and say you're weighing yourself to an all business. Why don't you stick to essentially your niche, which is, you know, the printer business or on the services side of that. That's where you're strong and you don't need these guys.

FIORINA: Well, I think that comes from a misunderstanding of what Compaq is and also a misunderstanding of where growth in our imaging and printing business will come from going forward. So Compaq is a $7 billion professional services business that earns 14 points of operating margin. It is a $7 billion storage company, No. 1 in the world, No. 1 in the fastest growing segments of storage, storage area networks. It is the leading fault-tolerant computing company in the world, the leading super- computing company in the world. It also happens to be the leading NT server provider in the world. So when we put...

CAVUTO: So this isn't like what Compaq hooking up with a digital equipment? That one was a disaster. You don't think you'd be repeating a disaster?

FIORINA: Well, there are a couple key differences. First, we've learned a lot from the acquisition Compaq (UNINTELLIGIBLE). And the integration of that was flawed initially and it took, by the way, a new CEO, Michael Capellas, and a new management team to fix the integration issues.

But, fundamentally, what Compaq got through its acquisition of DEC and Tandem were all the great assets that I just went through: professional services, storage, leading server company. When we put these businesses together, we get the No. 1 server company, Unix, NT, Linux, the No. 1 storage company, a No. 3 professional services company that earns 14 points of operating margin, and, oh yes, by the way, we also get an opportunity to fix our PC business.

CAVUTO: But if it is so great, you get all these various groups, right, you've got Matrix Asset Advisors, Victory Capital Management. As I've said, the Hewlett and Packard Family Foundation saying no. And I guess they're concerned that you're kind of destroying the legend.

FIORINA: Well, I can't comment on the motivations of the sons of the founders because, frankly, I don't understand them and I wasn't anticipating their actions. So I can't explain or justify it.

CAVUTO: But, did you feel like hey, like Custer for a while and then you just get in there and these guys are gunning for you?

FIORINA: But, you know, our customers understand this deal. Our employees understand this deal. Our partners understand this deal. And the more we have an opportunity to talk to shareowners, the more they understand.

CAVUTO: But what if you don't get this deal? If that happens, are they more or less told you, Carly, you're toast?

FIORINA: Well, first of all, I'm not going to speculate on what happens to me, other than to say that it is the board of directors who hired me to come into Hewlett-Packard, and it's the board of directors who will decide whether I stay.

CAVUTO: And by and large, with full-page ads and everything else, they seem to be sticking by you. But if you -- and I know you can't jump the gun on this nor should you -- have you been told that if this doesn't come to fruition, that your days are numbered?

FIORINA: Absolutely not. But I think the more important question is not about me. This is not about me, although our opposition would like to make it about me because it distracts people from the substance of the case. And on the merits of this case, we win.

It is about this company and what is good for our shareowners. And so, what I'd like to do is focus our shareowners on what they ought to be asking. They ought not to be asking about me. What they ought to be asking about is are there real risks in not undergoing this merger. And the answer is yes, there are real risks.

CAVUTO: In other words, you've said before that you're looking 10 years out, not just the short term?

FIORINA: Well, looking three and five years out. You talked about our imaging and printing business earlier. Our imaging and printing business is a great business, but it is the market-share leader in ever category in which it competes today. We have to enter new markets to keep growing that business, and entering new markets like digital imaging and digital publishing require servers, storage, software, professional services.

CAVUTO: But does it require PCs? That's such a finite business. I know you want sort of like a stake to build all this other stuff off of, but that's such a limited business that even critics, you know, of Hewlett are saying, well, maybe he has a point.

FIORINA: Well, first of all, digital imaging, a great growth opportunity for our imaging and printing business going forward absolutely depends upon PCs. Digital imaging as a category is taking off because of what PCs allow consumers to do in terms of the manipulation of images.

Secondly, 25 percent of our own imaging and printing business is bundled with our own PCs. But I think more importantly, it's not that PCs are a bad business. You have to have the right business model. Our PC business earned three points of operating margin, makes 15 points return on investment capital and is a great cash generator.

CAVUTO: All right. Right now, you have got 20 percent or so not going...


CAVUTO: ... those who have announced.


CAVUTO: Your gut tells you need, what, two-thirds of these institutional guys to make this happen. Again...


CAVUTO: Absolutely, but you saying you're there now, right? You are getting there now?

FIORINA: Well, I say we need retail investors. This is an example of where the individual shareowner and all the individual shareowners who watch your show, they can make a real difference here. Their vote truly matters. And so, we'd like the individual shareowners...

CAVUTO: Is it that close?

FIORINA: It's not a question of being that close. It is a question of, in any event, individual shareowners represent 25 percent of our shareowner base. They are important, with or without our opposition. And whether they are individual shareowners or institutional shareowners, they ought to be focusing on a couple of key questions. Does is create market leadership? Does it create real shareowner value? Does it improve our ability to make money and to generate cash flow? And has this board of directors, an independent board of directors, gone through a deliberate and thorough and comprehensive process? And we think the clear answer to all those questions is, yes, yes, yes and yes.

CAVUTO: All right. Carly Fiorina, thank you very much.

FIORINA: Thank you, pleasure.

CAVUTO: Carly is the Hewlett-Packard chairman and CEO.

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