Capellas Steps Down as HP President

UPDATE: Six months after helping complete the HP-Compaq merger, Michael Capellas says he feels time is right to move on.

Michael Capellas is quitting the No. 2 post at Hewlett-Packard Co., six months after helping complete the historic merger between HP and his former company, Compaq Computer Corp.

In a statement released today, HP said Capellas was stepping down as president—and also will leave the companys board of directors—to pursue other opportunities.

An HP spokeswoman could not be reached immediately for comment.

In a prepared statement, Capellas said now was the right time to leave.

"Im comfortable making this move because of the progress of the integration [between HP and Compaq], HPs market momentum and the strength of the management team," Capellas said.

Capellas reportedly is the top candidate to become the CEO at WorldCom Inc., the troubled telecom company. WorldCom is looking for a replacement for John Sidgemore, who had replaced founder Bernard Ebbers, who left as CEO following a financial scandal that included a $415 million loan the company had made to him.

HP Chairman and CEO Carly Fiorina said she supported Capellas decision to leave.

"Weve reached a natural transition point," Fiorina said in a statement. "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."

HP will not fill the presidents spot; instead, all those executives who once reported directly to Capellas will now report to Fiorina.

The decision came more than a year after HP, of Palo Alto, Calif., announced it intended to buy Houston-based Compaq.

The $18.5 billion deal was completed in May, after a lengthy proxy battle that saw HP heir Walter Hewlett sue to stop the buyout. HP prevailed during a trial in Delaware in April.

Martin Reynolds, an analyst with Gartner Inc., said HP could be hurt by the departure of Capellas, whom he called "one of the greatest assets of the [HP-Compaq] deal. Missing him now puts some extra burden on the rest of the company."

The key concern is that with Capellas gone and no one filling the president position, HP could struggle keeping its various business units aligned. Fiorina has done a good job surrounding herself with a strong executive team, said Reynolds, in San Jose, Calif. However, taking on the task of having the business units report to her directly could become burdensome, he said.

"Shes got a lot of very strong operational managers," Reynolds said. "The risk is that, without a president, they dont quite get the company aligned."

However, customers should feel little, if any, impact from Capellas departure, Reynolds said. As long as they get quality products on time, they wont be too concerned about the loss of the president.

Still, It would have been better for HP to have Capellas remain in Palo Alto.

"[Capellas departure] seems a little premature," Reynolds said. "It wouldve been better to have him stay throughout the transition."

Reynolds said Capellas move to WorldCom at this point is just rumors, although he said he would not be surprised to see it come true.

(Editors Note: This story has been updated since its original posting to include comments from industry analyst Martin Reynolds.)