HP Inc. (HPQ) delivered a mixed fiscal third quarter report, showing signs of recovery in its PC business but continued struggles in its printing division. Following the promise of CEO Enrique Lores that better results are coming with the ramp-up of AI-powered PCs and cost cuts, HP’s stock jumped 4% the day after the report. This echoed a similar trend seen with rival Xerox Holdings Corporation (XRX), which also reported weak earnings and issued a cautious guidance. However, unlike Xerox, which reported a revenue decline in its second quarter, HP Inc. saw its first sales increase in two years, fueled by a resurgence in corporate computer purchases and Microsoft Corporation’s (MSFT) decision to end support for Windows 10, forcing users to upgrade.
HP reported a 2.4% increase in revenue, reaching $13.5 billion. While consumer PC sales dipped by 1%, commercial sales saw an 8% improvement, mirroring the previous quarter’s trend of businesses upgrading their equipment ahead of Microsoft’s 2025 Windows 10 support deadline. This highlights the long-standing strategic alliance between HP and Microsoft, known as the HP and Microsoft Frontline Partnership, which combines their expertise in technology, engineering, and other resources to develop solutions for global productivity. Over time, their collaboration has evolved from enhancing PCs to cloud and data center innovations, encompassing emerging technologies across all scales.
Despite the positive PC performance, the printing division continued to struggle, with overall sales dropping 3% year-over-year to $4.14 billion. While consumer printing sales rose by 2%, commercial sales contracted by 5%. Operating margins in the segment also shrunk to 17.3% from 19% in the same period last year. While IDC reported a 3% year-over-year rise in worldwide PC shipments during the second quarter of 2024, reaching 64.9 million, the market hasn’t fully recovered as HP had hoped.
HP’s short-term outlook remains cautious. The company lowered its full-year profit outlook due to PC pricing not improving as quickly as anticipated and the persistent challenges facing the printing segment. Stiff price competition and the shift towards home offices continue to weigh on the division, prompting analysts to remain concerned. HP now expects full fiscal year adjusted profit between $3.35 and $3.45 per share, down from its previous expectation of $3.60 per share.
Despite the near-term concerns, HP, along with Xerox and other industry players like Dell Technologies Inc. (DELL), are banking on the so-called AI PCs to drive future growth. While AI PCs currently make up a small fraction of the business, the potential for increased adoption is seen as a bright spot in the long-term outlook. The company is hopeful that the AI-driven upgrades will re-energize the market and contribute to a sustained recovery in the years to come.
