HP President to Quit Amid Speculation

By P.J. Huffstutter and Glenda McCarthy

Nov. 12, 2002 12 AM PT

Times Staff Writers

Hewlett-Packard Co. President Michael Capellas said Monday that he will resign his post, walking away from the newly merged computer maker with nearly $14 million in bonuses and heading into speculation that he may land the top job at troubled telecommunications giant WorldCom Inc.

Capellas, the 48-year-old former chief executive of Compaq Computer Corp. who helped engineer its merger with Palo Alto-based HP, won’t be replaced when he steps down Dec. 1, according to company officials.

Both Capellas and HP Chief Executive Carly Fiorina said Monday that the split was amicable. It came as little surprise because Capellas’ compensation contract was amended earlier this year to allow him to receive his bonuses in a lump sum if he left within a year of the merger between the two rival PC makers.

Capellas has reported to Fiorina since HP, the country’s largest maker of personal computers and printers, bought Compaq in May after a lengthy and fierce battle with HP shareholders.

Fiorina said Capellas’ departure comes as HP is meeting its targets for integrating the two companies, including a vow to cut 15,000 jobs this year.

Yet many Wall Street analysts were skeptical of such a seemingly friendly parting of the ways. Capellas’ departure could mean that he had given up on hopes of ever leading the computer giant, said Kevin Hunt, a research analyst with Thomas Weisel Partners in San Francisco.

“Clearly, people are taking a negative knee-jerk reaction because so many people don’t have confidence in Carly Fiorina and thought he would have taken over eventually,” said Hunt, who does not own stock in Hewlett-Packard.

Monday’s news sent HP’s shares plummeting 11%, down $1.83 a share to close at $14.85 on the New York Stock Exchange.

Capellas said his departure is not a reflection of the company’s future prospects.

“I’m comfortable making this move because of the progress of the integration, HP’s market momentum and the strength of the management team,” Capellas said. “I have tremendous respect for Carly and her leadership.”

Industry watchers had predicted that Capellas’ time at HP was limited. After all, Capellas never bought a house in Silicon Valley. Instead, he chose to rent a place near Palo Alto and maintained his home near Compaq’s former base in Houston.

Joseph Beulieu, an analyst with Morningstar Inc. in Chicago, said Capellas’ departure will have little long-term effect on the computer giant.

Beulieu, who does not own stock in the company, pointed out that it’s rare for chief executives of two large companies to both stay on long after a merger.

Considering that Fiorina went into the merger as head of the dominant company in the deal, Capellas was the likely candidate to go, despite the companies’ efforts to paint the merger as a marriage of equals.

If Capellas had even tried to wrestle control of HP away from Fiorina, such a power struggle would have been incredibly destructive amid the current technology industry slump, industry observers said.

Capellas is used to adversity. Blind in one eye since childhood, he was told he was too scrawny to be a linebacker for his high school football team in Warren, Ohio. He responded by training until he became not only the team’s linebacker but also its co-captain.

Known for his technology expertise and love of a challenge, Capellas held 22 jobs at six companies before landing at Compaq in 1998 as its chief information officer.

Compaq promoted the fast-rising Capellas to chief executive and president in July 1999, three months after Eckard Pfeiffer was ousted because of the company’s financial woes.

Once the merger with HP was complete, Capellas took over the job of overseeing the combined firm’s day-to-day operations.

One of his tasks was to reassure employees who were uncertain about the merger and the resulting 17,000 job cuts, which will reduce the combined work force to about 133,000.

HP bought rival Compaq for $18.9 billion in the largest technology merger ever to boost efficiencies in an increasingly competitive industry.

Since the deal closed, technology spending has worsened more than expected, especially corporate spending for information technology.

The struggling PC maker is trying to fight back and promised to accelerate cost-cutting efforts this past summer when it reported declining revenue in most product lines.

HP officials declined to comment on the speculation of Capellas heading to WorldCom, which was first reported by the Wall Street Journal.

Sources at HP, though, say Capellas probably will leave the firm before December if he lands a new job.

WorldCom spokeswoman Julie Moore said the company would not comment on reports that Capellas is at least on the short list to become chief executive.

In addition to Capellas, WorldCom also has approached XO Communications Inc. Chairman and Chief Executive Dan Akerson and BellSouth Corp. Vice Chairman Gary Forsee about replacing its beleaguered CEO, John W. Sidgmore.

(BEGIN TEXT OF INFOBOX)

Michael D. Capellas

Age: 48

Hometown: Warren, Ohio

Education: BA, business administration, Kent State University, 1976

Career highlights:

* Management positions with Schlumberger Ltd., 1981-1996

* Director of supply chain management, SAP America,

1996-97

* Co-founder, Benchmarking Partners, 1996

* Senior vice president and general manager for energy division, Oracle, 1997-98

* Chief operating officer and chief information officer, Compaq Computer, 1998-99