HP Inc. Earnings: CEO Lores Says PC Refresh ‘Is Coming’

‘The refresh is still ahead of us. We have only started to see that. And we continue to believe that this opportunity is coming,’ HP CEO Enrique Lores said during the company’s quarterly earnings call.

HP Inc. CEO Enrique Lores told analysts on Wednesday’s quarterly earnings call that the majority of the PC refresh cycle “is still ahead of us” due to an aging install base, Microsoft’s Windows 11 operating system and the October 2025 end-of-support date set for Windows 10.

However, HP moderated its fourth fiscal quarter and full fiscal quarter expectations, with slower recovery in the print market a factor. Wednesday’s quarterly earnings report covered the third quarter of HP’s 2024 fiscal year. The quarter ended July 31.

“Companies are seeing the need to refresh,” Lores said, adding that the Palo Alto, Calif.-based company has seen improvement in not only traditional PC sales, but the “funnel of new opportunities.”

HP Third-Quarter Results

“The refresh is still ahead of us,” Lores continued. “We have only started to see that. And we continue to believe that this opportunity is coming.”

Lores acknowledged that compared with previous PC refresh cycles, this one “has probably started in a slightly slower way,” but HP sees momentum picking up.

“When we look at the funnel of opportunity that we have and the growth of the funnel compared to where we were a few quarters ago, it is definitely growing and definitely supporting the opportunity that we see,” Lores said.

When asked on the call if customers are waiting for Intel’s Lunar Lake client processors slated to arrive in the third quarter of 2024, Lores said HP is seeing the opposite.

“We are starting to see good momentum in commercial as the results this quarter reflect and under the projections that we have shared for Q4 and for the coming quarters,” he said.

During the call, Lores voiced disappointment in HP’s print business performance, saying that “even in this type of challenging environment, I expect us to do better.”

As for plans for the fourth fiscal quarter and full fiscal year, Lores said that HP “will maintain investments and progress in high-value and key growth areas and accelerate our cost reduction plan.”

Traditional PCs Recover, AI PCs Still Early Days

HP’s revenue growth in the quarter marked the first in nine quarters, Lores said. He called commercial PC results “a signal of ongoing market stabilization.”

HP’s global PC share was flat year over year and up 1.3 points quarter over quarter, Lores said. Workstations and consumer premium helped drive the growth.

Next-generation AI PCs that have only just started shipping haven’t shown “a significant impact” yet, Lores said. But “the reaction has been positive” and “experiences that we’re able to generate are very compelling.”

“Our focus is on delivering new AI experiences for our customers,” Lores said on the call. “Our AI PC expectations across shipments, higher ASPs [average selling prices) and premium mix remain on track with our expectations for the second half.”

Investing In Government Segment

Looking at traditional PC customer segments, Lores said that enterprises grew close to 5 percent. Small and midsize businesses grew 3 percent. Education grew 1 percent.

The government sector grew between 6 percent and 7 percent. A deal that should boost HP’s federal government business is the acquisition during the quarter of CyberCore, No. 149 on CRN’s 2024 Solution Provider 500.

Lores said on the earnings call that CyberCore is “a leading provider of secure supply chain management and cyber solutions for the U.S. federal government” and should “help further [strengthen] our security expertise.”

The solution provider will operate as a subsidiary of HPI Federal and a stand-alone entity and channel partner, according to a LinkedIn post.

CyberCore COO Jennifer Kauffman was elevated to the CEO position in June, according to her LinkedIn account.

Former CEO Neal Frick left the solution provider and started a consulting firm called Avandra, according to his LinkedIn account.

Improving The Print Business

Marking her first quarterly earnings call as HP CFO after starting earlier this month, Karen Parkhill told listeners that the vendor’s print business margins were hurt by “an incrementally aggressive pricing environment as our Japanese competitors continued to benefit from the weaker yen,” plus a challenging market environment in China and elsewhere.

“Against that environment, we took the opportunity to place hardware units that are profitable long term but diluted to the current overall margin rate,” Parkhill said. “Despite the headwinds, we also maintained our investment in the key growth areas that are going to generate long-term value.”

Hardware units declined 2 percent year over year, but HP’s total print market share increased both year over year and sequentially, she said.

Lores said that the challenges to print are not “structural changes, but definitely they are impacting our performance in 2024.”

“We were expecting to be able to be more aggressive in the second half, and we were driving a cost reduction at the hardware level,” Lores said.

When asked on the call about the durability of HP personal system price increases, Lores said that the vendor is “still in the process of adjusting our prices.”

“We cannot adjust prices immediately because there are contracts that have been signed or deals that have been done,” he said. “It takes us some time to adjust.”

Competition prevented HP from adjusting prices “as much as we wanted,” but the vendor “will continue to look in the coming quarters.”

When asked about a decrease of about $400 million in revenue through the first three quarters and growth of about $300 million year over year in operating expenses, Parkhill said that HP’s savings are apparent in the vendor’s margin delivery in personal systems and print and that the growing expenses are due to “reinvesting” in the business.

Personal system services and hybrid systems saw revenue grow double digits year over year with video collaboration a driver, according to HP.

Personal systems grew for the second consecutive quarter and saw double-digit sequential growth, Parkhill said.

Future Expectations

Parkhill said that HP expects “seasonally stronger” print revenue for its fourth fiscal quarter, plus “taking more aggressive actions to drive that margin improvement.”

“We’re accelerating our Future Ready plan,” she said. “We’re driving further reductions across the core—that includes business consolidation, reduction in platforms and supply chain optimization. And with all of this taken together, we’re confident in our ability to deliver the print margins near the top end of our 16 [percent] to 19 percent target range.”

The Future Ready Plan aims to deliver gross annualized structural cost savings of $1.6 billion by the end of fiscal year 2025, Parkhill said. The vendor expects to exit the current fiscal year with savings of $1.3 billion instead of the former projection of $1.1 billion.

As part of the Future Ready plan, Parkhill said that HP is “using generative AI capabilities to reduce customer call times in Workforce Solutions, and in our commercial organization, our move to more end-to-end processes is enabling much faster deal quotes for contractual customers and allowing customers to more easily buy and renew on HP.com.”

The vendor expects personal systems to grow sequentially in the low to mid single digits. Print should grow in the low to mid single digits. Supplies’ sequential increase should be in line with the prior year, Parkhill said.

Parkhill reaffirmed HP’s full-year free cash flow of between $3.1 billion and $3.6 billion.

The moderated fourth-quarter expectation now includes a sequential increase in the low to mid single digits, she said.

“We are expecting continued strength in commercial, but given the lingering softness in the consumer market, we are expecting less seasonal growth than we have seen historically,” Parkhill said. “We anticipate personal systems operating margin to remain in the upper half of our long-term target range of 5 [percent] to 7 percent in Q4 as we work to offset increased commodity costs through pricing and discipline cost management while continuing to invest in strategic priorities.

HP’s expected fourth fiscal quarter revenue growth for print is in the low to mid single digits, she said. Supplies revenue in fiscal year 2024 should decline in the low single digits.

HP’s stock fell about 4 percent after market close Wednesday, trading at about $33 a share.