HP Returns to Revenue Growth Amid PC Market Recovery and AI Demand

PC sales rebound helps HP return to revenue growth, but its stock falls on earnings miss - SiliconANGLE

PC sales rebound helps HP return to revenue growth, but its stock falls on earnings miss HP Inc. beat Wall Street's expectations on revenue in its latest quarter, but came up short in terms of profit, and its stock fell more than 4% in extended trading. The company said that PC sales rose more than expected, helping it to deliver $13.52 billion in revenue in its fiscal third quarter, up 2% from a year earlier and beating Wall Street's target of $13.37 billion by a fair distance. However, its earnings before certain costs such as stock compensation came to just 83 cents per share, trailing the Street's forecast of 86 cents. From a profit perspective, HP's net income hit $640 million, down from the $766 million profit it posted in the same period one year ago. HP Chief Executive Enrique Lores (pictured) said in a statement he's "pleased with our return to revenue growth and proud of the innovations delivered in the quarter, including the launch of our next-generation AI PC lineup". Declining sales of printers were the main drag on earnings, down almost 3% from the year-ago period. The company's printer segment delivered $4.04 billion in revenue, below the Street's forecast of $4.14 billion. In an interview with Bloomberg, Lores admitted that "office printing is not recovering as planned". He explained that "enterprises have been conservative in their budget". The lower earnings caused HP to revise its full-year outlook. For fiscal 2025, it's now anticipating earnings of $3.40 per share at the midpoint of its guidance range, down from an earlier forecast of $3.45 per share. For the fourth quarter, the company said it's expecting earnings of between 89 cents and 99 cents per share, which more or less tallies with the Street's target of 95 cents. HP said personal computer sales, which account for about 70% of its overall revenue, continued to grow during the quarter. Commercial PC sales increased 8% from a year earlier to $6.68 billion, helping to offset a slight, 1% decline in consumer PC sales, which totalled $2.69 billion. During the quarter, HP notably launched its first AI PCs, the HP OmniBook X and HP EliteBook Ultra, which both began shipping in June. The company has embarked on a heavy marketing blitz with its new AI PCs, which are laptops and desktops that integrate hardware designed to power generative artificial intelligence applications such as chatbots on the device. HP says this enables AI applications to work more quickly than traditional, cloud-based AI services such as ChatGPT, which often suffer from low latency. On a conference call with analysts, Lores said the new AI PCs are seeing "good momentum", but he didn't provide any concrete numbers, saying that they are so new that they only represent a fraction of the company's sales. However, he insisted that the devices have had "very positive reactions" from early adopters, and he believes they will contribute to around 10% of the company's overall PC shipments in the second half of the calendar year. Lores cited increased sales of PCs to businesses as the main factor driving increased sales in the quarter. He said many companies are now looking to refresh their PCs due to the looming end-of-support for Windows 10 and the fact that many of the devices they bought during the COVID-19 pandemic are starting to look outdated. HP's new chief financial officer Karen Parkhill said on the call that HP expects sales of PCs to grow in the fiscal year, in contrast to recent figures from the analyst firm International Data Corp., which forecasts overall shipments to be flat in 2024. "Despite the slowdown, because we think it's short term, we're continuing to invest in the future," she told analysts. HP also announced that it's boosting its stock repurchase authorization to $10 billion, having returned around $900 million to shareholders in the quarter via its dividend and buyback programs. Prior to today's decline, HP's stock was up 16% in the year to date, trailing its rival Dell Technologies Inc., whose stock is up 46%, but ahead of Lenovo Group Holdings Ltd., which is down 14%.

HP returns to revenue growth, driven by PC market recovery and AI demand

The PC market has been on a resurgence lately driven by customers upgrading their systems following a nearly two-year period of low demand post-pandemic. Demand is also expected to surge as companies roll out AI-capable PCs equipped with advanced, powerful processors designed for AI tasks. "We are pleased with our return to revenue growth and proud of the innovations delivered in the quarter, including the launch of our next-generation AI PC lineup," said CEO Enrique Lores. Global shipments of personal computers rose by 3% to 64.9 million units in the three months ended June, marking a second straight quarter of growth after two years of decline, preliminary data from research firm IDC showed in July. For the third-quarter, HP posted a 2.4% increase in revenue to $13.52 billion, compared with analysts' average estimate of $13.38 billion,according to LSEG data. The Palo Alto, California-based company also increased its share repurchase authorization to $10 billion. However, the PC maker expects fourth-quarter adjusted profit per share to be between 89 cents and 99 cents, the midpoint of which was below LSEG estimates of 95 cents. HP also tightened its fiscal year 2024 adjusted profit forecast to be in the range of $3.35 to $3.45 per share, compared with its prior outlook of between $3.30 to $3.60 per share. Analysts on average expect annual adjusted profit per share of $3.45, according to LSEG data. (Reporting by Juby Babu in Mexico City; Editing by Tasim Zahid)