The News: Hewlett-Packard reported its fiscal second-quarter 2023 earnings results, with the company reporting revenue of $12.9 billion, or a 22 percent decline (minus 18 percent in constant currency) versus the same period last year. Read HP’s Q2 2023 earnings release for more information.
HP FY Q2 2023 Earnings: Weathering the Storm and Investing for the Future
Analyst Take: Hewlett-Packard reported its FY Q2 2023 earnings, with the company’s revenue at $12.9 billion, or a 22 percent decline versus the same period last year, or 18 percent in constant currency. Similar to industry peers, Hewlett-Packard is heavily weighted toward technology segments that have seen dramatic declines due to macroeconomic headwinds, inflationary pressures, inflated inventories, and organizations prematurely accelerating the PC adoption cycle due to remote or hybrid work arrangements during the pandemic.
Although many would characterize the PC market demand as dismal at this point, our view is that the market is continuing to correct and should start to normalize at the end of 2023 or early 2024, with a few key caveats. As an example, the Personal Systems division is heavily weighted toward the commercial market (72 percent of revenue for the segment) and its units and revenue were down significantly less than the consumer segment.
Fundamentally, these results indicate that consumers have been plagued much more on the discretionary income front versus the commercial market, as evidenced by lackluster earnings from notable retailers such as Best Buy where its computing and mobile phones segment was also down 13 percent in its most recent quarter (higher than its prior year quarter decline of 11 percent) paralleling the Personal Systems consumer revenue declines.
On the commercial front, we see businesses still cautiously hiring but commercial demand has been more muted as organizations over-binged during the pandemic and have downshifted some of their desktop and mobile infrastructure spending toward more data center infrastructure, software, and security investments.
The Key Highlights of HP’s Fiscal Q2 2023
- FY Q2 2023 revenue was $12.9 billion, representing a 22 percent decline versus the prior year period or 18 percent in constant currency.
- FY Q2 2023 Non-GAAP operating margins were 8.7 percent versus 8.8 percent in the prior year quarter or a decline of 0.1 basis points.
- FY Q2 2023 non-GAAP diluted EPS of $0.80 was on the high side of its $0.73 to $0.83 range. GAAP-diluted net EPS for the quarter was $1.07 versus $0.94 in the prior year quarter, or a growth of 14 percent.
HP Fiscal Q2 Highlights by Business Unit:
Personal Systems: Revenue was $8.2 billion, down 29 percent year-over-year and down 25 percent in constant currency. For the quarter, Personal Systems constituted 63 percent of company revenue with the commercial market representing 72 percent and the consumer segment representing 28 percent.
From a unit perspective, overall, total units were down by 28 percent year-over-year with the consumer units down 34 percent year-over-year and commercial units down 23 percent year-over-year. The management team indicated that the Personal Systems division’s revenue was down year-over-year driven by lower volumes in the consumer and commercial markets, as well as currency changes and promotional pricing to move inventory.
Printing & Supplies: Revenue was $4.7 billion, down 5 percent year-over-year or down 2 percent in constant currency with consumer printing down 19 percent year-over-year and commercial printing up 5 percent year-over-year. The division is heavily weighted toward the commercial market, representing 63 percent of division revenue while consumer printing represents 14 percent and supplies represent 23 percent. Supplies revenue was down 4 percent year-over-year and down 3 percent in constant currency.
The management team indicated that revenue declines were due to lower consumer hardware sales, lower supplies, and currency offset by the commercial market. During the quarter, the division launched a new HP Color LaserJet 4200/4300 printing system designed to help growing organizations maximize profitability.
HP Fiscal Q3 2023 Outlook
- FY Q3 2023 GAAP diluted EPS is expected to be in the range of $0.61 to $0.71 while non-GAAP EPS is expected to be in the range of $0.81 to $0.91.
Hewlett-Packard Q2 2023 Key Takeaways
Overall, we believe that Hewlett-Packard performed well during the quarter given the macroeconomic backdrop that has been curtailed by inflationary pressures, the Russia and Ukraine War, and inventory gluts that have plagued so many organizations. The company remains extremely disciplined from a cost containment and margin accretion perspective, where it has benefitted from its Future Ready program as an example.
Although the personal computer market remains under pressure, Hewlett-Packard mentioned that while channel inventories are still elevated, they are continuing to be reduced. The company expects a much stronger back half for the division, which is expected to be propelled by a stronger consumer market, back-to-school, and the holiday season. On the commercial side, the market should also be driven by the K-12 and the federal government buy seasons which peak at the end of June and September in the United States. A key strategy for the company is also strengthening its focus on higher-margin or higher ASP (average selling price) segments such as gaming and high-performance workstations, along with upsell and cross-sell of peripherals, accessories, and other devices for conference rooms. In fact, the company recently announced its new Poly OS 4.0, which uses AI-driven speaker tracking and auto-framing to enable better collaboration experiences for remote workers. The company also announced five new gaming notebooks that incorporate Nvidia’s RTX graphic technology.
On the printer systems front, although total hardware units were down 4 percent year over year, commercial revenue was up. In essence, given the macroeconomic backdrop, many organizations have a tendency to closely monitor GDP growth and start moving up from the bottom of the operating expense line until they ultimately have to prune headcount. Thus, given that scenario and a looming recession, we would have expected a steep drop on the commercial front.
Overall, we feel these earnings are good and expect the company to perform much better in the second half of the year as the market continues to correct itself.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discussed HP Q2 earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Daniel is the CEO of The Futurum Group. Living his life at the intersection of people and technology, Daniel works with the world’s largest technology brands exploring Digital Transformation and how it is influencing the enterprise.
From the leading edge of AI to global technology policy, Daniel makes the connections between business, people and tech that are required for companies to benefit most from their technology investments. Daniel is a top 5 globally ranked industry analyst and his ideas are regularly cited or shared in television appearances by CNBC, Bloomberg, Wall Street Journal and hundreds of other sites around the world.
A 7x Best-Selling Author including his most recent book “Human/Machine.” Daniel is also a Forbes and MarketWatch (Dow Jones) contributor.
An MBA and Former Graduate Adjunct Faculty, Daniel is an Austin Texas transplant after 40 years in Chicago. His speaking takes him around the world each year as he shares his vision of the role technology will play in our future.
