Investors are showing strong interest in HP Inc. (HPQ, Financial) today after the company reported slight beats on both top and bottom lines for Q2. HPQ's Q3 earnings outlook aligns with analyst expectations, and it narrowed its FY24 earnings forecast. Notably, during its conference call, HPQ highlighted a market recovery in the latter half of FY24, driven by demand for AI PCs and progress in its Print segment.
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HPQ's Q1 performance was modest, with earnings per share of $0.82 and a revenue decline of just 0.8% to $12.8 billion. This was a positive shift from its recent history of mixed results, including three consecutive quarters without an earnings beat and missing revenue expectations five out of the past eight quarters.
- Q2 saw a significant slowdown in revenue decline, dropping only 4.4% compared to -6.5% in Q4, indicating stabilization.
- Personal Systems (PS) revenue saw its first year-over-year growth in two years, increasing by 3% to $8.4 billion. This growth was attributed to market expansion and early signs of demand recovery in the commercial sector, pointing to further stabilization.
- In the Print segment, revenue fell by 8% year-over-year to $4.4 billion, reflecting ongoing demand challenges, particularly in China and parts of Europe. Despite competitive pressures, management is optimistic about regaining profitable market share, with sequential market share gains in both home and office segments.
- Print's difficulties are a key reason for HPQ's cautious FY24 guidance, adjusting its EPS outlook to $3.30-3.60 from $3.25-3.65. However, management is hopeful for a second-half recovery, driven by enthusiasm for upcoming AI PCs, which could boost demand beyond the expected PC refresh cycle and Windows 11 rollout.
HPQ is banking on AI PCs to drive demand over the next two quarters, potentially leading to positive momentum for the holiday season. While it's uncertain how much the average user will utilize AI, improvements in battery life, productivity, and efficiency could encourage upgrades to higher-priced models. AI PCs are expected to see significant demand in the commercial sector, assisting IT departments and business users. However, HPQ's success will depend on software integration, making it crucial for Microsoft (MSFT, Financial) to effectively incorporate AI into its operating system to stimulate significant demand.
