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

Updated from 6:33 p.m. EDT

Analysts and investors frowned at the announcement that H-P's(HPQ Quote) second-ranking executive, Michael Capellas, is leaving, giving the tech giant yet another challenge.

Cappellas' impending departure, possibly to head up troubled WorldCom, created a minor tizzy in Monday trading. The news triggered a 11% slide in the stock, which was the most heavily traded share on the Big Board.

Capellas, who had been the chief of Compaq, accepted the No. 2 title of president following the company's merger with Hewlett-Packard. His departure means H-P will be losing a hands-on operational chief who still holds loyalty among former Compaq workers, leaving H-P CEO Carly Fiorina to handle ongoing issues of the merger and continuing challenges to the company's core businesses.

Capellas will walk away with a windfall of $14.4 million, equivalent to three times his annual base salary of $1.6 million plus his target annual bonus of $3.2 million, according to the separation agreement outlined in his employment contract. Plus, he'll receive a $1.86 million payout representing a pro-rated annual bonus. Capellas will also be forgiven a $5 million stock purchase loan under the terms of a pre-merger contract, but will pay back with interest a $2.5 million loan he received to cover tax expenses.

Despite the departure, most onlookers say H-P faces plenty of bigger challenges on the strategic front, pointing to weak demand in the core PC market and increasing pressure from archrival Dell (DELL Quote).

Overall, most treated the news as an incremental negative for the stock, though a few critics of Carly Fiorina took the occasions to lob potshots, questioning her ability to run the company on her own.

Shares gave up $1.83, or 11%, to $14.85 in Monday's trading. H-P's stock has slid 27% year to date, though the current price has popped upward by a third from its Oct. 9 low.

"I think it's a mild negative only for really psychological reasons," says Thomas Weisel's Kevin Hunt. His firm hasn't done recent banking for H-P. "I think there are a lot of people who for whatever reason don't like Fiorina. They liked Capellas as an insurance policy. Now that he's not there, those people are not going to be happy and may sell the stock."

"Fiorina's got more than her hands full, and losing a top guy like Capellas is yet another blow," says Paul McEntire, portfolio manager for the (TPFQX Quote)Marketocracy Technology Plus fund, which doesn't have a holding in the stock. At Compaq and H-P, Capellas earned a reputation as a "quite brilliant operations manager," he says. "He did a pretty good job of handling the difficult [merger] transition."