Why would HP CEO Carly Fiorina put so much pressure on herself — so
unnecessarily — by upping an earlier 15 per cent 2001 sales growth target to
17 per cent?
Already, HP's stock has plunged to just $32. In the face of an increasingly
shaky global economy picture, slowing sales in Internet servers (as the dotcom
industry suffers from corporate evaporation), and sharp declines in PC sales, no
one would have faulted HP for cautioning slower than anticipated sales growth.
HP's stock would probably have gone down a bit. It did anyway, but by a whopping
10 per cent. And some would argue the stock slit just because the 17 per cent
forecast appears somewhat unrealistic.
Most high-tech companies, including Intel and Microsoft (and HP until
recently) are traditionally ultra-conservative in their sales forecasts because
high-tech firms are expected to beat their forecasts.
If HP would have taken a more cautious route, achieving a 17 per cent growth
level would have been seen as a major achievement in the face of economic
adversities, resulting in a significant positive reaction on Wall Street. Now,
17 per cent growth is merely meeting forecast, something that gets little or no
attention on Wall Street. To impress, HP’s sales would have to grow 20-22 per
cent, something that would seem inconceivable at this point.
Where would that growth come from? Even Fiorina said HP's PC sales are
suffering from the same industry-wide slowdown that is impacting Dell, Gateway
and Apple. That means printer sales, another major revenue source, will be
impacted as well. Other business units will have to overcome all of that and
then some to meet or beat the 17 per cent growth rate.
Not meeting the 17 per cent level will likely set up Fiorina for a long-term
struggle to achieve the level of credibility Wall Street is looking for.
Credibility that has already been shaken by the PricewaterhouseCoopers merger
fiasco. Fiorina, eager to succeed, clearly is taking a big gamble with the
company's forecast in the face of many major uncertainties over which HP has
little or no control. We should hope it will turn out to be a good bet.