HP blames discounted PCs and China chill for Q3 revenue drop

At least the cost-cutting scissors are still sharp

HP is putting a brave face on its third quarter 2023 results, claiming it's making progress to long-term growth priorities while enacting structural cost savings, despite revenue being down nearly 10 percent year-on-year.

The PC and printer maker blamed an "aggressive pricing environment" holding down computing prices, as well as sluggish demand in China, as reasons why the market is not improving as quickly as it had earlier anticipated.

HP's net revenue for Q3 was $13.2 billion, down 9.9 percent from the same period last year but up 2 percent over the previous quarter, allowing president and CEO Enrique Lores to claim that the company is delivering on its plan to drive sequential improvement.

Lores said that HP "continues to navigate an uneven environment," with enterprise customers cautious about spending thanks to the rising cost of capital. The consumer segment also remains weak, but the SMB sector is showing some resilience, he claimed.

On a regional basis, HP saw revenue decline by 8 percent across the Americas, 5 percent in EMEA, and 9 percent in Asia-Pacific and Japan (APJ), the latter primarily driven by that weakening demand in China.

"Most markets are experiencing some weakness, although at different levels. For example, we saw a downturn in the China market, where demand is not even yet back in the lower GDP recovery," he said.

HP Personal Systems revenue came in at $8.9 billion for this quarter, which is down 11 percent year-on-year, but again up over the previous quarter, this time by 9 percent, which HP attributes to back-to-school demand.

For HP's hardy perennial Print products, revenue was $4.3 billion, down 7 percent when compared with the same period last year. This was again blamed on weakened demand in China, as well as aggressive pricing in the consumer print market and delayed enterprise spending in the industrial space.

Supplies revenue was "broadly flat" compared with a year ago, but HP claimed it delivered an operating margin of 18.6 percent, reflecting its "disciplined cost management."

The graphics and 3D markets were impacted by "the macro environment and delayed ordering cycles," according to Lores, but remain important parts of HP's plan for long-term growth.

Looking ahead, Lores said he expects HP to deliver another quarter of sequential growth in Q4, but that the company is moderating its expectations for both the quarter and the full year.

In other words, there will continue to be cheaper PCs for those who are still buying, and this looks set to continue until the end of the year.

Investor site Barron's reported that HP shares fell sharply early on Wednesday in response to the news, but said HP's plans could be a case of "short-term pain for long-term gain" that could lead to stronger earnings and cash flow in future.

The bad news if you are a HP worker is that the company is looking to make additional cost savings to weather the ongoing sluggish market conditions.

Lores said that HP's goal for the next year is to "reduce our structural cost by $1.4 billion" and that it aimed to achieve 40 percent of those in fiscal 2023, which ends in October.

By comparison, HP said at the end of the last financial year that the $1.4 billion cost-cutting measures would come between now and the end of FY 2025, and would partly be delivered by laying off between 4,000 and 6,000 staff.

However, CFO Marie Myers said that another part of the plan revolved around simplifying HP's product portfolio and significantly reducing the number of platforms it supports.

"At the end of Q3, we were nearly halfway to our goal of reducing our total number of Personal Systems platforms by approximately one-third by the end of FY '24," she said.

Lores said that HP would have more details to share at its Investor Day in October, when it would disclose its plans for FY 2024 and the longer term outlook.

Responding to a Reg query, HP said of its structural cost reduction plans: "We announced in November the plan to generate $1.4 billion over three years. Those plans are on track and helping us navigate the current environment while maintaining investments in long term growth priorities, where we continue to make good progress." ®

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