Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HP Inc (HPQ, Financial) returned to revenue growth for the first time in nine quarters, with a 2% year-over-year increase.
- Strong performance in the personal systems segment, with revenue up 5% year over year.
- Introduction of next-gen AI PCs, which are expected to drive higher average selling prices and premium mix.
- Significant progress in key growth areas, including personal systems services and hybrid systems.
- Strong free cash flow generation of $1.3 billion in the quarter, with $0.9 billion returned to shareholders.
Negative Points
- Non-GAAP operating profit was down 7% year over year.
- Print market recovery was slower than expected, impacting print revenue.
- Aggressive pricing environment and unfavorable geographic mix, particularly in China, pressured print margins.
- Continued softness in the consumer PC market, leading to less seasonal growth than historically seen.
- Competitive pricing pressures from Japanese competitors benefiting from a weaker yen.
Q & A Highlights
Q: Can you disaggregate the pressure on print margins in fiscal '24 and explain why you expect improvement in Q4?
A: Our Q3 print margin was below expectations due to aggressive pricing and a challenging market environment, particularly in China. We placed hardware units that are profitable long-term but dilutive to current margins. For Q4, we expect seasonal revenue strength and are accelerating our future-ready plan, including business consolidation and supply chain optimization, to improve margins.
Q: How are AI PCs performing, and what impact do you expect in the coming quarters?
A: AI PCs are performing well, with sales expected to be slightly above 10% in the second half. We recently launched next-gen AI PCs with Qualcomm and AMD processors, and while initial reactions are positive, the impact on results has been minimal so far. Adoption will be faster in consumer markets, with commercial adoption taking longer due to evaluation processes.
Q: How do you view the print market and competitive landscape, particularly regarding market share and pricing?
A: The print market was challenged, with slower recovery than expected, especially in the office category. We saw positive growth in the home space and stable supplies performance. Competitors are leveraging a weak yen for aggressive pricing. We are focusing on placing profitable units and reducing costs to maintain market share.
Q: Can you provide insights into the commercial PC recovery and the potential for a large refresh cycle?
A: The PC market recovery is driven by commercial demand, with enterprise, government, SMB, and education segments showing growth. The refresh cycle is supported by an aging installed base and Windows 11 adoption. We expect the refresh cycle to continue, with a significant portion still ahead of us.
Q: How do you balance cost savings and investments for long-term growth?
A: Our savings are reflected in both OpEx and COGS, allowing us to deliver margins within or above target ranges despite a challenging macro backdrop. We are reinvesting savings into key growth drivers, resulting in higher operating expenses. This balance ensures we offset headwinds while maintaining strategic investments.
Q: Do you still expect to grow revenues for the full year, and how should we view the impact of future-ready savings on operating profit?
A: We expect seasonal growth in Q4, with personal systems and print revenues increasing sequentially. Future-ready savings are focused on offsetting headwinds and maintaining investments. While print operating profit has not grown as expected, personal systems have shown growth. The competitive environment, particularly in print, has impacted our performance.
Q: What is your view on capital allocation and returning free cash flow to shareholders?
A: We remain committed to returning approximately 100% of free cash flow to shareholders, with a new $10 billion share repurchase authorization. This commitment reflects our focus on delivering value to shareholders while maintaining flexibility for higher ROI opportunities.
Q: How do you view the durability of recent price increases in personal systems, and what is the outlook for the Federal Government customer vertical?
A: We are still adjusting prices in personal systems and expect to continue doing so in the coming quarters. Historically, we have been able to adjust prices over time. The Federal Government segment showed strong growth, and we expect this trend to continue, supported by recent deals and a strong funnel of opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
