Five Keys To Understanding HP’s Business Going Forward

‘We are managing through a volatile external environment that continues to impact demand across our industry. This is reflected in our top line with net revenue down 4 percent year-over-year. It’s worth noting that the rate of revenue decline slowed for the third straight quarter, which we see as an encouraging sign of market stabilization,’ says HP CEO and President Enrique Lores.

Looking Good, But Still A Journey To Growth

HP Inc. Wednesday in its first fiscal quarter 2024 financial report said that the company is making progress in slowing the decline of its business, with new innovations including AI PCs and moving its entire portfolio to a subscription basis expected to help return to growth.

HP CEO and President Enrique Lores, during his prepared remarks during the first fiscal quarter 2024 financial analyst conference call, told investors that HP is making progress towards growth.

“We continue to make progress in our key growth areas,” Lores said. “We’re maintaining our investments in a down market to strengthen our competitive position, and there are several bright spots this quarter. We grew revenue and market share year-over-year in gaming. Workforce Solutions delivered solid revenue growth and won several new accounts, including large global companies in the energy, retail, and telecommunication sectors. And we drove continued momentum in consumer subscriptions.”

[Related: HP Inc. CEO Lores: AI PC Adoption Will Be ‘Gradual’]

However, Lores’ message so far was not received with open arms by investors. The release of HP’s quarterly financial report at the close of the trading day Wednesday was followed Thursday with a 1.3-percent drop in share prices to around $28.32 per share near the market’s Thursday close.

Lores in his Wednesday investor presentation discussed several areas of HP’s business which he said shed a positive light on the potential for further growth, including:

HP is in an interesting space as it works out how to improve its business in a very competitive PC and print market. For highlights of where the company is going based on Lores’ pitch to investors, read his five key comments.

Things Are Looking Up

We are managing through a volatile external environment that continues to impact demand across our industry. This is reflected in our top line with net revenue down 4 percent year-over-year. It’s worth noting that the rate of revenue decline slowed for the third straight quarter, which we see as an encouraging sign of market stabilization.

We continue to make progress in our key growth areas. We’re maintaining our investments in a down market to strengthen our competitive position, and there are several bright spots this quarter. We grew revenue and market share year-over-year in gaming. Workforce Solutions delivered solid revenue growth and won several new accounts, including large global companies in the energy, retail, and telecommunication sectors. And we drove continued momentum in consumer subscriptions, with Instant Ink [ink and toner subscriptions] delivering another quarter of revenue and net subscriber growth year-over-year.

Innovation: AI PC, Subscriptions

We are focused on creating new product categories, expanding our digital services and solutions, and driving internal productivity. We took a big step forward this quarter at CES, where we launched our first laptops using Intel’s new Core Ultra processors. This launch helped us to win over 100 innovation awards at CES.

More importantly, this is just the start of what will be an exciting year for AI PC innovation as we bring new products to market with our silicon and software partners in the coming quarters. Alongside the PC opportunity, we continue to develop new AI applications to run on top of our installed base of more than 200 million commercial devices. The best example of this is the Workforce Central platform we have discussed with you previously. We have since expanded and renamed the offering which we now refer to as the HP Workforce Experience platform. It integrates data and telemetry from our PC, printer, and Poly devices into a single dashboard to improve productivity, security. and collaboration, and it is now available to all of our managed solution customers.

We’re also shifting more of our offerings to subscriptions in [our] consumer segment. This week, we will be launching our HP All-In subscription plan, which we previewed with you at our Investor Day last October. For a monthly fee, consumers will receive a printer, ink delivery, premium 24/7 support, and an option to upgrade their hardware every two years. This has tested extremely well in our pilots with customer satisfaction exceeding Instant Ink’s already high scores. All of this gives us great momentum heading into our Amplify Partner Conference next week. Amplify is our largest channel event of the year, drawing our top 1,500 commercial resellers from around the world. We will have several of our top silicon and software partners with us to discuss the AI PC opportunity. And we will be launching a range of new innovations across personal systems, print, and Workforce solutions.

Business Unit Performance

In Consumer, we anticipated a post-holiday slowdown, and this was a bit more pronounced than initially expected. Commercial customers remain cautious. While we saw signs of stabilization in the SMB and education markets, we saw a slowdown in U.S. enterprise and federal sales, especially in the month of January. We also continue to see demand weakness in China due to challenging economic conditions, partially offset by strength in India.

Personal Systems net revenue was $8.8 billion in the quarter. That’s down 4 percent year-over-year or 5 percent in constant currency, reflecting market dynamics and seasonality. Consistent with the industry estimate, we continue to expect the PC market to grow low-single-digits in 2024, and we expect to grow at least in-line with the market.

Our PS (Personal Systems) team continued to show resilience and operational rigor, delivering operating profit of 6.1 percent, which was solidly within our long-term target range, although slightly below our expectations. Importantly, we once again gained PC share in calendar Q4, both year-over-year and quarter-over-quarter. This shows that HP innovation is winning in the market, and we are winning in the right areas with a focus on high-value segments such as premium workstations and gaming. PS services revenue was up year-over-year, with strong growth in digital services. And while hybrid systems remain impacted by the current enterprise spending environment, we are investing in the portfolio for deferential market recovery and long-term growth opportunity.

Print Business Down, But Watch This Space

Net revenue was $4.4 billion. That’s down 5 percent year-over-year, reflecting market headwinds, China softness, and the aggressive pricing environment. And I am pleased with the progress we are making on pricing and share gains in supply. We continue to effectively manage our costs and mix between consumer and commercial, with operating profit of 19.9 percent. We’re also making progress on our efforts to regain profitable share. ... We’re also pleased with our progress in industrial graphics and 3D, both of which grew revenue year-over-year in Q1. We also saw continued recovery in labels and packaging, and we are ramping up for Drupa in May. Held every four years, this is the world’s largest printing event, where we will launch a range of new innovations to accelerate our momentum in the market.

Ignoring The Macroeconomic Environment

Despite pockets of softness in Q1, we saw signs of improvement overall. While we expect the pace of recovery to be uneven across different segments, we remain confident in our ability to deliver on our full-year non-GAAP EPS and free cash flow targets. And as we said before, we expect performance in the second half of fiscal year ’24 to be seasonally stronger than the first half.

By remaining focused on things we can control and investing in our future, we have proven our ability to navigate current market dynamics while capitalizing on long-term growth opportunities. This is exactly what we did in Q1. And it’s what you can expect from us moving forward as we drive progress against our Future Ready plan.