NEW YORK (CNN/Money) - %*#%$#%@!

Plenty of Hewlett-Packard investors must have been screaming some version of that unprintable expletive after hearing about the company's stunning earnings miss and warning on Thursday morning. Shares of HP (HPQ: Research, Estimates) plunged 17 percent on the news.

Every time it looks like HP is finally back on track, and that its heavily criticized merger with Compaq might at last be paying off, the company drops a hydrogen bomb of a warning on Wall Street.

HP's enterprise storage and servers unit (selling hardware to large businesses) reported an operating loss of $208 million in the third quarter, following a profit of $120 million in the fiscal second quarter. Sales dipped nearly 5 percent from a year ago and were down almost 16 percent sequentially.

The problem seems to be more of an HP execution issue as opposed to a slowing economy.

When IBM (IBM: Research, Estimates) reported quarterly results in July, it cited particular strength in servers and storage. And when Dell (DELL: Research, Estimates) reports results after the bell Thursday, it's expected to post healthy sales increases in its enterprise business.

As a result, HP announced Thursday that it would be making management changes in the enterprise unit.

But perhaps it might be time for HP to consider even more drastic moves.

HP chairman and CEO Carly Fiorina and CFO Bob Wayman did their best to pass most of the blame on enterprise and tout what they thought were decent numbers at other operating units.

They must not have been looking at the same numbers everyone else was.

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"Wall Street's concern is that HP's management doesn't fully grasp the strategic challenges they face and you can't really believe what they say if they don't get it," said Michael Mahoney, managing director for EGM Capital, a hedge fund that sold its stake in HP a few months ago.

A closer look shows that HP's results were a spectacular flop across the board.

The software business continues to lose money. Profits in HP services fell nearly 8 percent from a year ago even though revenues were up 12 percent.

Sales from the company's personal systems (PC business) dipped 1.4 percent from last quarter, which is not that bad considering this is typically the weakest quarter for consumer sales. But profits in the division fell 44 percent to just $25 million.

HP's poor results will likely lead to even more criticism of its 2002 merger with Compaq.

Since its merger with Compaq was completed in 2002, HP has been locked in a bitter battle with Dell for the PC global market share lead and the resulting price competition has hit profit margins, which were a miniscule 0.4 percent in the third quarter.

Dell reclaimed the top spot in the first quarter and held onto it in the second quarter, according to research firm IDC.

Perhaps most troubling though is that operating profits in HP's printing and imaging division, its cash cow business, were 14.8 percent, down from 15.6 percent in the second quarter. And with Dell making a bigger push into printers, this could put continued pressure on printing margins.

Sure, the economy is weakening. But the biggest problem for HP in the third quarter and going forward does not appear to be soft demand. Despite the company's warning, HP still expects sales to increase about 12.5 percent sequentially in the fourth quarter, to about $21.25 billion.

Poor profitability in several of the company's operating units continues to be the company's Achilles' heel. And it's this beat one quarter and miss the next one routine since completing the merger with Compaq that really irks Wall Street.

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If Dell, which raised its fiscal second quarter earnings target last month, reports a solid quarter, that will make HP's results look even worse.

Fiorina admitted during the conference call Thursday morning that it hasn't been easy for HP investors during the past few years.

"Regarding consistency, I certainly share your frustration," she said.

So Wall Street will probably once again clamor for the company to undergo a massive restructuring.

Since HP announced its merger with Compaq, its stock has slumped while rivals have soared.

Influential Merrill Lynch analyst Steve Milunovich, for example, suggested in a report in June that HP should either spin off the printing and imaging business into a separate company or split HP into two firms, one focusing on consumers and the other on corporations.

And Fiorina might now have to wonder about her job security. HP has tried, since the Compaq merger, to emulate the IBM business model, becoming a one-stop tech shop offering services and software in addition to hardware. It doesn't seem to be working.

HP's share price is now 26 percent lower than where it was before announcing the merger with Compaq in Sept. 2001.

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Dell and No. 2 printer maker Lexmark (LXK: Research, Estimates), on the other hand, have mainly stuck with hardware and printers respectively and investors appear to appreciate that. Both stocks are up 54 percent since Sept. 2001.

Mahoney said he doubts that HP's board would look to get rid of Fiorina in the near future but that if the company continues to struggle, she is the logical scapegoat.

"Fiorina is the one who made the decision to do the Compaq merger and that throws into question her leadership," he said.

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