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Aggressive PC discounts might not be here for long, says HP

After challenging Q2, CEO reckons channel inventory starting to finally clear

HP is counting the cost of customer demand being zapped by inflation and continued pricing promotions to clear higher than normal inventory after revenues plunged by more than a fifth in its latest quarter.

The world’s second largest PC maker reported revenue of $12.9 billion for the quarter ended April 30, down 22 percent year-on-year. It recorded a pre-tax profit of $1.066 billion, flat on the same period of 2022 due to a cost cutting program.

“The industry-wide headwinds we described last quarter continued to impact our business,” said CEO Enrique Lores. “Against this backdrop, our teams did an excellent job controlling our costs, managing our pricing and shifting our mix.”

“We continue to see cautious consumer discretionary spending, while enterprises are delaying capital investments.”

HP can’t control demand but it can manage it overheads, and embarked on a new drive in November to rationalize the PC portfolio, automate some processes and clear out between 4,000 to 6,000 employees. The aim is to save $1.4 billion.

With this in mind, Lores told analysts on an earnings call that it “delivered on our year-to-date cost target, keeping us on track to deliver at least 40 percent of our three-year savings by the end of fiscal year '23.” This saving will be reinvested into innovation, he added.

HP really had nowhere to hide in the quarter: the Personal Systems division posted revenues of $8.2 billion, down 29 percent: commercial was down 24 percent, and consumer fell 39 percent. The Printing group was down 5 percent to $4.7 billion, and again here it was consumers that stayed at home.

CFO Marie Myers said of the PC operation: “We continue to make solid progress on reducing our channel inventory level sequentially, but levels remain slightly elevated for us and across the industry. As a result, we continue to see aggressive pricing in the quarter. We estimate sell-out declined less than sell-in during Q2, which means that end-user demand was stronger than sell-in shipments.

“Lower volumes, FX, and increased promotional pricing remained headwinds, partially offset by contributions from hybrid systems revenue. We increased our market share in high value, more profitable segments, including commercial and premium notebooks.”

PC sales fell 30 percent across the industry in calendar Q1, according to IDC data.

Hardware revenue in print was down about $100 million, again due to “lower volumes and competitive pricing actions in consumer, partially offset by an increase in commercial hardware revenues.”

Some 70 percent of HP’s business in the quarter came from commercial customers.

Lores said he’s still convinced hybrid work is a “long-term cyclic trend,” despite more and more businesses calling their staff into the office for more of the time, and he is pinning hopes on a recovery in the second half of this year relative to the first.

He thinks HP will normalize channel stock volumes from July, and thinks the consumer side of the PC portfolio will be boosted by back-to-school and holiday season sales. As for those pricing promotions? If you want to buy a discounted HP, now might be a good time to tuck in. ®

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