The Six Five team discusses HP Q2 Earnings.
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Transcript:
Pat Moorhead: So company missed on top line, beat on EPS. A couple of things really stood out for me though. First of all, beating on profit at a time that demand is plummeting is really hard exercise. And I give credit to Enrique and company, which by the way, I appreciated talking to him on earnings day to kind of break this down a little bit. So operational excellence, this is hard to do when demand is plummeting to beat on profits.
So other things that I gleaned from the report in the call, sell out outperformed sell in. And what does that say is that they have good demand. And in the end, what is it about the PC and the printer market that is, at the end of the day, if end user demand has plummeted and, listen, it’s nowhere near where it was a year ago because we’re back to work, we’re spending money on different things. I’m not going to use that word because I don’t want to be monitor here, but yeah, a good demand. For the first time in a long time, the company also talked about gaining share, right? Gain share year on year, quarter on quarter. And not just low end consumer stuff, but they’re saying that over the past year they’ve gained 2.5 points of commercial market share.
The biggest question that came up, and it was funny, I felt pretty good about myself, but the question I had asked Enrique was the first question he got on the call and that was about, “Hey, why do you feel so good? Why do you have confidence in the second half of ’23?” It’s very basic, right? Channel reductions are to the point where you just don’t have a lot of channel, slightly elevated, but they’re burning it off and second half in the PC market since the dawn of time has always been bigger in the second half than the first half. So I don’t feel like Antonio is necessarily saying that he was going to beat these expectations, even though he did raise a guidance or there was something phenomenal in the market. I think he was saying, “Yeah, second half is going to look better than the first half.” In the second half you have back to school, you have holiday around the globe, and typically the second half is always 60 to 70% of the entire year.
Daniel Newman: So yeah, just didn’t know. I was waiting for you to breathe out, so I knew that was all me. All right, so listen, the overall state of the PC will continue to be a huge weight on HPA and they have diversified the business more, especially with some of the hybrid work, the poly acquisition. And I do think there is a fairly significant on device AI wave that will create another buying cycle for PCs. But I do think we’re still probably a few quarters out. That killer app is not as well understood yet as for instance, ChatGPT, and we just don’t know exactly what that on device thing will be. But we all seem to have a sense that that’s going to happen. I think it’s about managing business. One of the more encouraging things was seeing inventory levels come back under control, which gave an indication that we’re going to start to see a possibility for a bottoming and a growth.
And of course those are things that the market tends to have to look at is a lot of this has been kind of spreadsheet driven, Pat. It’s been the math of, “Where does things sit in the spreadsheet? Are they burning through inventory?” We’ve seen last few quarters when we’ve talked about Qualcomm, it’s been, “Oh, the inventory burn off didn’t happen as much as they thought. Another quarter here, we’re going to wait one more quarter to see if it happened.” They also guided up a little bit. So they actually had a slightly more encouraging guide, which again means are we kind of at a bit of a turning point? Again, I don’t think we’re out of any weeds yet. There’s still so many macro factors that we aren’t weighing in. But I do think that that’s encouraging because again, you can always run your business better. And so it seems that they’re continuing to improve how they run their business. They had a lot of early on issues with supply chain, but seemingly have gotten that under control as supply chains have eased and hopefully longer term that means good things for the company. So that’s probably about it for me. Again, kind of biz as usual, given the macro circumstances, Pat.
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.
