Together, Hewlett-Packard and Compaq would have had about 18 percent of the worldwide personal-computer market in the second quarter, according to Dataquest. By contrast, Dell held 13.1 percent of the PC market.

Fiorina, who considered buying PricewaterhouseCoopers LLC's consulting arm last year to bolster her company's services unit, may be most interested in Compaq's growth in that area. Still, about 55 percent of Compaq's services business is low-end technical support, Kumar said. That's not going to be much help to Fiorina, he said.

Services -- in particular outsourcing contracts, where companies turn over management of entire networks or computing departments -- have sustained IBM through fat and lean quarters, because multiyear contracts generate a steadier stream of revenue than hardware sales.

Before the second quarter, services had generated two-thirds of IBM's sales growth since 1994 -- $20 billion of the $32 billion total.

Consulting and outsourcing have been recent bright spots for Hewlett-Packard, which gets about 15 percent of its sales from services. While hardware demand dropped, consulting revenue rose 9 percent in the latest quarter, with outsourcing climbing 20 percent. Total services revenue in the period rose 3 percent to $1.88 billion. Compaq's services sales rose 6.8 percent in the second quarter to $1.94 billion, or 23 percent of total revenue.

[...]

``They have the fire power, but they'll run to major problems with suppliers,'' Tilney's Roe-Ely said. ``Compaq has a contract with Lexmark International Inc., which competes with HP.''

Compaq, which bought Digital Equipment Corp. in 1998, has stumbled in its efforts to reorganize the company around its services business. Since Capellas became CEO in 1999, he has restructured Compaq three different times. That doesn't bode well for Hewlett-Packard's chances, analysts said.

``Compaq bought Digital for services,'' said Gartner Group's Bertram. ``They haven't made a particularly good showing of services. Now H-P buys Compaq -- how much baggage is going to come with this?''

Fiorina, Capellas

Capellas and Fiorina, who sat next to each other at an Aug. 8 party celebrating the 20th anniversary of the first IBM PC, were named to their respective posts just days apart, with Fiorina starting July 19, 1999, and Capellas taking over Compaq July 22.

Hewlett-Packard stock has fallen 48 percent since the day before the company hired Fiorina, then a Lucent Technologies Inc. executive. Compaq shares have dropped 53 percent since the day before Capellas was promoted.

[...]