Hewlett Packard is looking to new PC and print innovations to grow its business going forward and get it past a slump that the company saw for its second fiscal quarter 2023.
The quarter was a tough one for HP, which saw a 29-percent year-over-year drop in personal system sales and a 5-percent drop printing sales compared to those of the second fiscal quarter 2022, leading to an overall drop in total revenue of 22 percent.
Investors seemed to focus on the second fiscal quarter results, pushing the Palo Alto, Calif.-based company’s share price down by about 1.2 percent by the end of the trading day and by another 5 percent in after-hours trading.
Even so, HP is poised for growth going forward, said company president and CEO Enrique Lores.ADVERTISEMENT
Lores, speaking to press and analysts just before unveiling HP’s second fiscal quarter 2023 financial results, said that he was pleased that HP is delivering on its promises.
“I’m sure you remember that at the start of the year, we were clear about two things,” he said. “We said we would focus on things we can control in a tough macro environment. And we also said that we will invest in the business to drive innovation and long-term growth. And this is exactly what we have done.
During the quarter, HP was able to beat consensus earnings per share and grow both that number and operating profit over last quarter while significantly reducing channel inventory, Lores said.
“And this reduction gives us great confidence in the second half,” he said. “And this is reflected in the strong guide that we have provided today, which is significantly above consensus.”
Innovation, as shown by the introduction of over 50 new personal system and printing products and solutions at the recent HP Amplify partner conference in March, will continue HP’s expansion into key growth areas including hybrid work and AI, Lores said.
“We also talked about hybrid work and how it remains a key driver of innovation and also a big attractive long-term growth opportunity,” he said. “And I have to say [that] partners were really excited about the power of the combination of HP and Poly portfolios, and how what we’re doing from a technology perspective.”
HP in August completed the $3.3 billion acquisition of Poly, the peripheral and vice conferencing giant.
“But really what makes us really excited is a much larger opportunity that we see to redefine what are PCs and what [they] can do. … We are now actively working with key software and silicon partners to create new PC architectures,” he said. “And we really think that this is going to be a significant driver of PC refresh in the coming years.”
When asked how AI will define what PCs will do in the future, Lores answered with an example.
“Just think about the future when a new analyst will have to build a new spreadsheet,” he said. “Rather than having to do all the work, they will ask the PC to build and do the analysis that they need. And they will be able to refine the analysis, asking further questions once the analysis is completed.”
While such work could be done on the cloud, in many cases users will want to do it locally for latency and privacy reasons, Lores said.
“To do that, we need a new architecture of PCs that will be able to continue to have the same type of processes we have today, but also to do and to process fast AI applications,” he said. “And these new architectures are what we are working both with the key software vendors but also the key silicon providers. … Because of the value that these new applications will have for customers, we see a tremendous refresh opportunity.”
When asked why HP has confidence in the future, Lores said that channel inventory is almost back to normal levels after making progress in the last two quarters. Also, he said, general inventory was reduced in the second because end user demand was stronger than shipments.
“The second half, usually especially in consumer, is a stronger period of time that the first half because of back to school, because of holidays,” he said. We really think that the PC business will be rebounding in the second half and that the second half will be stronger than what we saw in the first half.”
When asked about HP’s strategy for print in a hybrid work world, Lores said office requirements will change going forward as businesses move from large centralized copiers and large printers towards decentralized environments while looking to reduce the cost per copy.
Home printing will also change, both in terms of what users will print and their security requirements, he said.
“As we have shared before, our goal is to be able to offer all of it as a service, either as a contractual service on the office side or as a subscription for consumers, which is also a big opportunity for us going forward,” he said.
When asked about what solution providers should expect from changes in the business going forward, Lores said partners should expect the PC market to start growing in 2024 and 2025.
“There are new use models like hybrid that really are going to be driving the need for a refresh,” he said. “There is a new operating system with Microsoft that also will help them reach a large installed base of PCs in the commercial space, in the enterprise space, that needs to be refreshed. … Also, I think it’s important to highlight that HP is absolutely committed to the channel. We are a channel company. And this is how we expect to continue to drive the business going forward.”
For its fiscal second quarter 2023, which ended April 30, HP reported revenue of $12.91 billion, down 21.7 percent over the $16.49 billion the company reported for its second fiscal quarter 2022.
That was $130 million lower than analyst expectations, according to Seeking Alpha.
The revenue figure included personal systems revenue of $17.39 billion, down 27 percent over last year. The commercial personal systems segment saw revenue of $12.35 billion, down 21 percent, while the consumer personal systems segment saw revenue of $5.04 billion, down 37 percent.
HP also reported total printing revenue of $9.35 billion, down 5 percent over last year. Included in that number was supplies revenue of $5.86 billion, down 5 percent; commercial printing revenue of $2.15 billion, up 3 percent; and consumer printing revenue of $1.34 billion, down 11 percent.
HP also reported GAAP earnings of $1.07 billion or $1.07 per share, up from last year’s $1.00 billion or 94 cents per share. On a non-GAAP basis, HP reported earnings of $797 million, or 80 cents per share, down from last year’s $1.15 billion or $1.08 per share.
Non-GAAP earnings beat analyst expectations by 4 cents per share, according to Seeking Alpha.
Looking ahead, HP expects third fiscal quarter GAAP earnings of 61 cents to 71 cents per share, and non-GAAP earnings 81 cents to 91 cents per share.
Joseph F. Kovar is a senior editor and reporter for the storage and the non-tech-focused channel beats for CRN. He keeps readers abreast of the latest issues related to such areas as data life-cycle, business continuity and disaster recovery, and data centers, along with related services and software, while highlighting some of the key trends that impact the IT channel overall. He can be reached at [email protected].
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