Why Carly's Out

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So how did Fiorina incur her board's ire? In part, it was simple hubris. HP's directors had been voicing unhappiness with her performance for months, particularly after some dismal earnings numbers were posted last summer. Increasingly disillusioned with her inability to deliver the profits she promised, the board was stung by her refusal to make changes or relinquish operating responsibility in HP's floundering computer business. "She played a brinkmanship game and didn't realize the other side wouldn't budge," says Rob Enderle, a tech analyst in San Jose, Calif. "It's a game she's used to playing. She bet wrong."

Her resignation came a week before HP was due to report earnings--a report that the company acknowledges will meet Wall Street's estimates. But the guillotine blade began its descent in December, when IBM decided to sell its money-losing personal-computer business to Lenovo, a Chinese company. IBM had concluded that a PC was a commodity, little more than a toaster that also does long division, and its decision to get out of the business spotlighted Fiorina's opposite bet. Under her command, HP in 2002 spent $19 billion buying Compaq, largely to expand its position in PCs and fight off Dell, the market's low-cost leader. Though the merger had produced cost savings--and wrenching layoffs--profits remained hard to come by. In 2003, despite Fiorina's promises that operating margins would reach 3%, the company's PC division earned a meager 0.1% on $21.2 billion in sales. And last August, the company's Enterprise Servers and Storage Group, which sells to corporate customers, reported a $208 million loss for the quarter.

As a furious Fiorino reacted by publicly firing the server unit's boss and two others, the board began to take a harder look at her performance. By early January, outside directors, led by Dunn, ex--White House science adviser George Keyworth, and Richard Hackborn, a former HP chairman who once turned down the CEO job, read her a four-page critique. At a board planning session later that month, the directors, growing bolder, presented Fiorina with her effective demotion. The approach of a damning cover story in FORTUNE reportedly hastened her departure. The piece, headlined "Why Carly's Big Bet Is Failing," included on-the-record quotes by HP insiders criticizing Fiorina and laid out in wincing detail the merger's failure to produce the financial results she had long promised.

In certain respects, Fiorina did exactly what she had been asked to do. Hewlett Packard is Silicon Valley's alpha company, founded in a garage by Bill Hewlett and Dave Packard in 1938, when the area had far more peach trees than programmers. HP first produced oscilloscopes, then expanded to other testing and measuring instruments. It was a pocket-protector paradise, its culture defined by the HP way: paternal, collaborative, entrepreneurial, community minded and inconspicuous.