Compaq: Fiorina's Folly Or HP's Only Way Out?

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iorina, who once noted that "all Compaq has done is follow our strategy by nine months, to the letter," is now doing her best to mend wounds. Her most telling act last week was to send a honey-coated e-mail to all Compaq employees, acknowledging the "surprise and fear" they might be feeling and professing her "deep respect for Compaq: your tenacity, your resilience, your drive, your commitment." It was signed "Warm regards, Carly." Whether that goes down well as Compaq suffers its portion of the predicted 15,000 layoffs--totaling roughly 10% of the combined company--remains to be seen.

Compaq's best asset may well be Fiorina's most trusted subject--Capellas, the chief executive who negotiated the deal with her over the past 18 months and will become HP's president. In contrast to their companies, Fiorina and Capellas have a relationship as complementary as it is cozy. "She is forward looking and charismatic; he's more of a nuts-and-bolts operations guy," says Rob Enderle, West Coast research fellow for Giga Information Group. "That can make for an extremely powerful team, assuming he relocates to California. This cannot be done remotely. They have to be joined at the hip."

No one at Compaq or HP seems to be under any illusion about the arduous tasks ahead--blending their cultures, cutting costs ruthlessly (the target is $2.5 billion by 2004) and cracking the services market. Compaq founder Canion, for one, is cautiously optimistic. "These are strong companies being judged in a tough time," he says. At the very least, his baby's new mom has managed to defer judgment for a little while longer.