HP's consumer PC biz shrinks by a fifth as inflation bites

The solution? Inventing another 'transformation programme' to transform previous transformation

HP is putting together a recovery plan to counter a sharp slowdown in its PC and printer businesses, including yet another transformation program.

For its Q3 ended 31 July, HP reported revenue of $14.664 billion, down 4.1 percent year-on-year - this was significantly lower than the $15.6 billion average that analysts had projected.

The soft spot? HP PC sales to consumers [PDF] were down by a fifth on a year ago, although CEO Enrique Lores said on an earnings call with analysts that businesses are also starting to scrutinize spending plans in a slowing economy.

"Like many companies, we are managing through some challenging market conditions with a focus on what we can control," said Lores.

The Personal System Group recorded a 3 percent year-on-year dip in revenue to $10.089 billion. HP said total units were down 25 percent. Notebooks revenues were down 10 percent to $6.57 billion, and shipments fell 32 percent.

Desktops grew 13 percent to $2.537 billion with units up 1 percent, and Workstations revenues bounced 35 percent to $537 million. In total, commercial PC revenue grew 7 percent and consumer fell 20 percent.

"Inflation increased in many parts of the world, and this led to lower consumer spending for our product categories," said Lores. "And demand in Europe worsened against the backdrop of the Russia-Ukraine war. Although we highlighted pockets of consumer softness during our Q2 call, the environment deteriorated more rapidly late in the third quarter."

"The strength of our commercial business, particularly in the enterprise, helped us to partially offset declines in consumer demand. Still, the fact that we remain supply constrained did not allow us to fully rebalance," he added.

PCs became the center of the universe for many during the pandemic, reaching highs not seen in years, but the buying frenzy has slowed amid market saturation of Chromebooks and a faltering economy. Gartner revealed earlier in the summer that shipments into channels between April and June had slumped to their lowest level in 9 years.

In the Printing division, HP reported a revenue decline of 6 percent year-on-year to $4.575 billion. Supplies shrank 9 percent to $2.814 billion, commercial was down 3 percent to $1.035 billion and consumer was up 1 percent to $725 million.

Despite the revenue drop, HP reported net profit of $1.119 billion compared to $1.108 billion a year ago. This was helped by a $500m plus reduction in total costs and expenses as well as a shift to higher margin computing gear.

In recent months tech vendors from Microsoft, to Cisco, Google and others have sought to pause hiring in certain areas and asked staff to be mindful of business expenses. In recent weeks, a raft of companies including Salesforce, Workday, ServiceNow and Dell have talked of a spending slowdown among enterprise customers.

Lores said on the call: "Looking ahead, the macroeconomic environment remains challenging. Consumer softness is likely to continue in the near term. We also see some companies taking a more measured approach to their spending and new orders showing signs of softening demand in commercial categories. And although we have made significant progress on supply chain, some shortages remain."

As such HP has clipped its profit forecast for the year to between $4.02 to $4.12 per share from the prior forecast of $4.24 to $4.38 per share.

"While we cannot control how the economic situation evolves in the coming months, there are some very clear actions we can take to mitigate the impact of near-term headwinds and drive continued progress against our long-term growth strategy," said Lores.

This recovery plan includes steering clear of pricing wars with competitors, concentrating on "pockets" of profitable growth, reducing variable spending and "“accelerating our Digital transformation" internally.

"We have already met or exceeded many of our objectives in our current transformation plan. And we're in the process of finalizing the foundation for a new multiyear transformation program that we plan to share with you during our Q4 call," the CEO said.

The current phase started in late 2019 following the appointment of Lores, and included laying off 16 percent of 55,000-strong workforce.

One thing that won't change for HP is the payday for shareholders: "We are maintaining our capital allocation strategy," said Lores. "In Q3, we returned $1.3 billion to shareholders, and we expect to exceed our commitment to return $16 billion to shareholders as part of our value creation plan. These are the right areas of focus regardless of the macro environment."

There may be staff working for HP that disagree. ®

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