HP Inc., a leading provider of computers, printers, and printer supplies, in its Q1 earnings call discusses about the comprehensive picture of their current business strategy and market positioning. The company mentioned it’s actively mitigating tariff impacts by reducing China-based production to under 10% of US revenue by fiscal year-end 2025, while expressing confidence in a 33% earnings increase in the second half driven by Windows 11 refresh cycles and AI PC adoption, projected to reach 25% market penetration. Management mentioned that their Personal Systems segment shows strong momentum with 10% commercial growth, and they’re strategically leveraging the Humane acquisition to accelerate AI deployment and enhance device connectivity. Despite commodity costs remaining a headwind, HP is seeing growth across multiple segments and has achieved double-digit revenue growth in consumer subscriptions, including their successful paper delivery service that has surpassed 1 million subscribers.
HP reported mixed Q1 results with revenue growing 2.4% year-over-year, while EPS fell 5% from a year ago. The company’s Personal Systems segment grew 4.7%, driven by strong commercial performance, up 9.9% to $6.65 billion, which offset declining consumer sales, down 6.7% to $2.58 billion. Meanwhile, Printing revenue continued declining by 2.4% despite modest growth in consumer printing. HP is strategically reducing China-based production, targeting over 90% of North American products to be manufactured elsewhere by fiscal year-end 2025 to mitigate tariff impacts. The company is investing in AI capabilities and software solutions, including the Humane acquisition to accelerate its “future of work” strategy, while achieving double-digit growth in consumer subscriptions.
Continue Reading: Unearth the Vital Insights from HP Inc.’s Earnings Call!
Financial/Operational Metrics:
- Revenue: $13.5 billion, up 2.4% YoY.
- Net Income: $0.6 billion, down 9% YoY.
- Diluted EPS: $0.59, down 5% YoY.
- Operating Margin: 6.3%, down 0.8 percentage points YoY.
- Free Cash Flow: $0.1 billion, up 180% YoY.
Outlook:
- Q2 FY25 Diluted EPS: $0.62 – $0.72.
- Q2 FY25 Non-GAAP Diluted EPS: $0.75 – $0.85.
- FY25 Diluted EPS: $2.86 – $3.16.
- FY25 Non-GAAP EPS: $3.45 – $3.75.
- FY25 Free Cash Flow: $3.2 – $3.6 billion.
Analyst Crossfire:
- China Tariff Impact & Mitigation, Personal Systems Growth Drivers (Joseph Cardoso – J.P. Morgan): HP included the known impact of China tariffs in its guidance, primarily affecting the Personal Systems (PS) business. Less than 10% of North America’s revenue will be subject to tariffs by FY25. HP is leveraging its global supply chain to mitigate the impact. HP expects continued market growth, especially in commercial, driven by an aging install base, the Windows 11 refresh, and AI PC penetration. The company is focusing on premium segments for higher profitability (Karen Parkhill – CFO, Enrique Lores – CEO, Enrique Lores – CEO).
- AI PC Adoption Forecast & Tariff Scenario Planning (Brian Luke – UBS, Wamsi Mohan – Bank of America): AI PCs are expected to represent 25% of shipments by the end of 2025, exceeding the prior 20% forecast. Long-term adoption remains on track for 40%-50% by 2027. The average selling price (ASP) premium for AI PCs is projected to remain 5%-10% higher than traditional PCs. HP has included the first 10% China tariff increase in its guidance, but not additional tariffs. The company will use the same mitigation playbook as before, balancing pricing and profitability strategies (Enrique Lores – CEO, Karen Parkhill – CFO).
- Commodity Cost Impact on Margins & Personal Systems Market Share Gains (Dylan Liu – Morgan Stanley): HP expects commodity costs to be a headwind for margins throughout FY25, but gradual improvements starting in Q2. Pricing adjustments will depend on the competitive environment. HP remains focused on gaining market share in the commercial segment and growing faster than the market, especially in premium categories (Karen Parkhill – CFO, Enrique Lores – CEO).
- Humane Acquisition & AI Strategy, PC Industry Growth & Pricing Impact (Michael Ng – Goldman Sachs, Mike Cadiz – Citigroup): The acquisition brings AI expertise and software assets to accelerate AI at the edge and improve device connectivity, with initial focus on seamless PC and video conferencing integration. HP aligns with industry forecasts of 4%-5% PC unit growth and expects price increases to push revenue to high single digits, with HP growing faster than the market (Enrique Lores – CEO).
- Competitive Print Environment in China & Consumer Subscription Growth (Jake – Wells Fargo): No significant changes in China’s supplies market. HP continues to grow share and maintain strong supply business performance globally. HP saw double-digit growth in subscription services, surpassing 1 million paper subscribers and expanding all-in print offerings, including big tank products (Enrique Lores – CEO).
The post HPQ Q1 Call Highlights: AI PC Adoption, Supply Chain Resilience and Subscription Milestones! first appeared on AlphaStreet.
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