PC Price Promos, Flaky Economy Halve HP Profits

Now remains a good time to buy a relatively cheap personal computer – not that pricing promotions are helping out the executive leaders at HP who are doing all they can to rapidly slash operating expenses.

The world's second largest PC maker last night reported an 18 percent year-on-year decline in group turnover to $13.8 billion for its Q1 of fiscal 2023 [PDF] ended January 31. Profit was down 55 percent to $500 million.

"This reflects industry-wide headwinds, including corporate budget tightening that has started to impact large enterprise spend," said HP CEO Enrique Lores on a call with analysts.

With "macro volatility" continuing, the Personal Systems division felt much of the pain, down 24 percent to $9.2 billion: consumers and commercial were down 36 and 18 percent respectively.

HP's boss said sales cycles were lengthening among biz customers and it was adjusting prices to spur demand. CFO Martie Myers, on the same conference call, said it had managed to reduce PC stock in the channel.

"However, levels remained elevated for us and across the industry. With that, combined with improved supply availability, pricing competition intensified incrementally in the quarter. Our backlog remains consistent with pre-pandemic levels and still skews favorably towards commercial higher-value units."

As such, HP's margins on its PC kit – already a fraction of printer hardware – declined to 5.4 percent, down 2.4 points year-on-year.

HP was lifted by a wave of PC purchases during the early COVID-19 outbreak when people were locked up indoors. The market soared to almost 350 million units in 2021 but came back down with a bang last year.

IDC estimated shipments of 67.2 million in calendar Q4, down 28.1 percent, and calculated that shipments for the year were down 16.5 percent to 292.3 million – still way above pre-pandemic norms. Gartner is forecasting a slower year for device purchases.

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Lores said PC unit sales may "regress to pre-COVID levels in the short term" but he anticipates they will remain "structurally higher" in the medium term. The market has shifted more and more to notebooks, and these have a shorter refresh cycle than desktops. HP has also bought comms outfit Poly for $3.3 billion and expects this to expand its total addressable market.

The print business is also challenged, down 5 percent in HP's Q1 to $4.6 billion. Consumer was down 3 percent and Commercial printing up 2 percent. Supplies was down 7 percent. Operating margin was 18.9 percent.

"Although return to office is uneven, the pages per device remain in the range of 80 percent of pre-COVID expected levels," said Lores.

Looking ahead for HP's total business, the CEO added: "We are not expecting a significant economic recovery" in fiscal 2023. HP's performance is anticipated to improve in the second half of the year, "driven by our cost-saving measures and as the improved channel inventory levels create a more normalized pricing environment."

In October, HP announced the Future Ready plan, which aims to save $1.4 billion, and that includes reducing the workforce by up to 6,000 roles. The company said it can't control the weakened state of customer spending, but can control its own costs. ®