The Six Five Team discusses HP Inc Q3 2023 earnings.
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Transcript:
Patrick Moorhead: HP Inc Q3. What happened there, Dan? Did they catch the same bug that the entire PC industry has?
Daniel Newman: Yeah, so sequential growth year over year, not as good. I think on the EPS side, they managed. On the revenue side, they fell a little bit short of expectations. And really we had the chance to talk to their CEO, Enrique Lores. Comments kind of seem to be consistent on a quarter basis, but what’s also been consistent with some of these OEMs and some of these chips is as much as they want to be able to read the tea leaves into the future, the tea leaves are not clear as to when this market for PCs is going to really turn.
And when you’re in the businesses that HP is in, both PCs, peripherals, printers, it does all sort of … unlike some of these other companies that can maybe trade on some diversification into infrastructure, cloud, they’re very dependent on sort of a similar cycle, which would be for all these PC replacement cycles, peripheral replacement cycles. And so for HP, it was a very kind of muted, conservative call. I mean, I think their quarter to quarter growth is indicative that maybe there’s some healing in the economy coming forward.
I think they did have the ability to claim some market share gains, which were positive for the company. Of course, when you dig into market share gains, you also have to dig into some secondary factors like ASPs and what parts of the portfolio did those market share gains come from. And so we’ll have a better idea, Pat, of that when we see Dell. And so where did that gain come from?
The overall sort of sentiment is … this is probably the one thing that I’m not sure what Enrique and his peers are supposed to do, and this is the AI conundrum. Enrique was not particularly outspoken about how AI is going to impact HP’s business. And the truth is, is that at the edge and on the device, I think we all kind of know it’s going to happen. But what we don’t know yet, and this is the same thing that handset providers are kind of struggling with too, is what are people going to pay for? So meaning that the ability to run a large language model on a PC or on a device, will people pay more for an iPhone for an Android device, for a PC to do that? Now I can imagine in workstations we’ll see some momentum because of the kind of workloads that we’d want to be able to run locally.
And so you could see some spend on a more powerful GPU, CPU combination long-term on workstation. But on PCs themselves, when you’re doing a lot of inferencing in your applications in workspace, Microsoft, Salesforce, how much more powerful does the computer need to be to do that? And is there an AI cycle for what I would say everyday usability for inclusion of AI versus only those specialized workstation requirements? But the guide was very conservative, Pat. There didn’t seem to be a clear understanding of when the turnaround was going to come.
But what I do see is a company that has fixed some of its supply chain challenges, that is working hard to win share, that is continuing to deliver cashflow and profit to the bottom line. But it was kind of like I said, a bit of a muted quarter for the company where I think they’re looking to the future. Two to three quarters out from now is where I sort of feel like that real momentum is going to get picked up, but I think that’s just become the status quo for companies that are focused on devices.
Patrick Moorhead: Yeah, that’s exactly how I was going to start. The entire PC market is muted because there’s so much uncertainty. There’s interest rate uncertainty in Western Europe. A little bit more interest rate stability here in the US. China is a complete unknown. I think the good news is it does look like the channel inventory has been pretty much swept through. I mean, I think there was a lot to be excited about if people did the double click. I mean, profits are up, right? We’re not in a price war, although ASPs did go down and we’re going to have to wait for Dell’s earnings to see what happened there.
They gained unit market share, which I think is a plus. They did have sequential growth, which by the way, if we went from a calendar Q3 to a Q4, it’d be less impressive to me. But the Q3 calendar is always bigger than Q2 and it has been for 20 years. So I’m not as impressed by the sequential growth because the market, that’s just the way it times. It was nice to see it unfortunately got buried when Polly was up. That was a plus. I think that may have been some of the only businesses that were up aside from some other growth areas. So that was a positive. So I think the whole industry is uncertain here in the second half. And I don’t know if we’re going to get even clarity in the first half.
To your point on AI, Daniel, if the PC industry wants to have its moment with Microsoft, it’s likely going to have to create a new category of PCs like AI, the AI PC or something to make it black and white what that means, and they need to show that it increases ASPs, it increases profits, potentially signals a new wave of PC innovation.
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.
