Capellas' Departure Just Another Brick in H-P's Wall

If that weren't enough, Dell is also consuming H-P's share on the PC front. In just the last quarter, Dell unseated H-P to take the No. 1 spot in worldwide PC market share, claiming 15.8% of unit shipments to H-P's 15.7%.

That reversed the lead H-P had held in the second quarter, when it claimed 15.8% market share to Dell's 14.9%.

"Dell's performance over time has been very steady," notes Roger Kay, director of client computing at IDC. "As Dell will gleefully point out, look at the bottom line. Dell is still consistently making money doing what they do."

In contrast, H-P's PC division posted an operating loss of nearly $200 million in its most recent quarter, suffering a sequential drop-off in revenues of 18%. The division isn't expected to return to profitability until the second half of 2003.

Merger Transition: On Track?

Despite the harsh competitive pressures facing H-P, a few analysts sought to extract some comfort from the news of Capellas' departure, saying his exit suggests at least that the merger transition is proceeding to plan.

In a prepared statement, Fiorina sought to play up that angle, saying H-P has "reached a natural transition point. Michael made a commitment to see the merger through, and now thanks to the hard work of the entire team, we are meeting or exceeding all of our integration targets."

Lehman's Dan Niles agreed: "We believe this [departure] would only occur if [Capellas] felt HPQ was in good shape," adding, "As much as we hate this phrase, we would use this weakness as a buying opportunity." He predicts H-P will offer encouraging sales and earnings guidance when it reports fourth-quarter results next week. (His firm hasn't done recent banking for the company.)

Seconding that notion is Milunovich. "We don't think his resignation portends weak business or other execs leaving. In fact, we believe the integration is going well," he writes. "Although we are disappointed, we maintain our buy rating, figuring H-P is bigger than any one person." (His firm hasn't done recent banking for H-P.)

Like Niles, he predicts H-P will make a decent showing next week. Milunovich expects the company to notch revenues of $17.4 billion, slightly above the Street's estimates of $17.3 billion, and "at least" meet the earnings forecast for 22 cents.