Updated from 5:02 p.m. EDT

In its first full quarter of financial results since a hard-won merger with Compaq, Hewlett-Packard ( HPQ) could offer little solace to shareholders unsettled by the bleak outlook for technology demand. Though the company met earnings estimates, sales came in slightly below expectations.

More to the point, management wasn't able to say when an upturn might lead business out of the doldrums, and it admitted that PC rival Dell' s ( DELL) been stealing market share as it grapples with its post-merger transition.

For the third quarter, H-P posted a net loss of $2 billion, or 67 cents per share, calculated according to generally accepted accounting principles. Pro forma earnings per share were 14 cents, in line with consensus estimates.

HP took pre-tax charges of $1.6 billion for restructuring; $735 million for in-process research and development; $322 million for merger-related retention; and $340 million for other merger-related items.

The company notched sales of $16.5 billion, under Street expectations of $16.7 billion.

The combined revenues of H-P and Compaq fell 9% from the prior quarter, with the worst sequential declines occurring in the PC line. The division encompassing personal and commercial computers, notebooks and PDAs saw sales decline 18% from the prior quarter and were 19% below year-ago levels. H-P chalked up the poor showing to "poor macroeconomic conditions, intense price competition and post-merger product transitions."

On the conference call, president Michael Capellas said consumer demand had been "weaker than expected in all regions." Commercial sales had been relatively stronger, he added, though they had also declined. "Clearly we're not pleased with the operating loss" of nearly $200 million in the PC division, he said, saying the company would push to gain share in the small and medium business market. "There are only two world-class competitors, H-P and Dell, and we will see them become even more competitive."

But that won't be easy. "In the PC business, the retail inventories are still over eight weeks," noted Kevin Hunt, an analyst at Thomas Weisel Partners. "They're going to have to get down to five or six weeks to get profitable in that business and have a healthy PC market. That will be an area to watch over next few months." Moreover, if demand doesn't pick up much around the holidays, "there could be a lot of price wars at Christmas time," he said.

H-P's server and storage business has likewise suffered. Combined revenue in enterprise systems was down 8% sequentially and 22% year over year.

CEO Carly Fiorina said in a prepared statement that those declines were largely expected. "The pattern of our revenue declines in personal and enterprise systems is consistent with our merger planning assumptions," she said.

Results were stronger in the company's printer business, which accounts for the vast majority of profits. Revenues rose 10% year over year, though they slid 3% from the prior quarter.

Overall, said Hunt, the conference call didn't contain any surprises. "I have a wait-and-see approach," he said. "Clearly they've had a disruption to revenues with this merger. I want to see some sign they're getting closer to the resumption of normal business trends" before upgrading the stock.

From a value standpoint, the stock would still need to shed a few more dollars before it looks cheap enough to buy, he adds.

In other news, H-P's pro forma operating expenses were up sequentially from 21% to 22.5% of net revenue, which the company attributed to normal seasonal patterns and merger-related sales training and product rollouts.

But the company said it's on track for cost savings of $500 million in 2002 and $2.5 billion in 2003, which it said is a year ahead of its initial plan.

Nearly 4,740 employees have been let go or have left this fiscal year, and the company says it's aiming for a total workforce reduction of 10,000 by the end of its next quarter.

For the fourth quarter, H-P affirmed Wall Street estimates of $17.4 billion in revenues and earnings of 22 cents per share on a pro forma basis.

The latest guidance effectively means it's given up the goal it outlined in June, to post sales in the $35 to $36 billion range for the second half of the year. Now the company looks set to achieve just under $34 billion.

On the conference call, H-P also said it wouldn't expense options.