Analyst: Olivier Blanchard
Publication Date: September 3, 2024
Document #: MCEOB202409
The News: HP Inc. and its subsidiaries announced fiscal Q3 2024 net revenue of $13.5 billion, up 2% (up 3% in constant currency) year-over-year (YoY) and representing an encouraging sequential growth (QoQ) bump from Q2’s $12.8 billion. “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 Enrique Lores, President and CEO, HP Inc. “We remain focused on our strategic plan and will prioritize opportunities that drive long-term profitable growth while taking decisive action to navigate a dynamic environment.”
HP’s FY 2024 Q3 Results: Positive Signals at AI PC Supercycle Starting Line
Analyst Take: Overview of HP’s FY 2024 Q3 Results by Segment.
Personal Systems – Personal Systems net revenue was $9.4 billion, up 5% YoY, with a 6.4% operating margin.
Remember that this does not reflect the on-ramp to growth in the PS segment that the nascent AI PC refresh is expected to drive throughout the next few cycles. The very first wave of next-generation Windows AI PCs – branded “Copilot+ PC,” and expected to both accelerate and expand the refresh cycle for PCs – launched in June with Qualcomm’s new Arm-based Snapdragon X platform, with AMD ramping up launches Copilot+-ready PCs powered by their chips in July. Intel will follow as early as this fall. In short, we are at the starting line of this supercycle and shouldn’t expect HP’s numbers (or any PC OEM’s for that matter) for the July quarter to reflect the impact that the Copilot+ category is likely to have on shipments for the next 2-3 years.
Case in point: HP’s Consumer PS segment’s net revenue was down 1% (offset by the Commercial PS segment’s solid 8%). Still, the accurate indicator for me is that the Copilot+ effect won’t start to be felt for at least another quarter as total units were only up a modest 1% for the quarter, with Consumer PS units down 6% and Commercial PS units up 6%.
Welcome to The Start of the AI PC Reset and Supercycle
You may recall that earlier this spring, HP announced that it was retiring its Pavilion, Spectre, Dragonfly, and Envy brands (budget, prosumer, premium business, and premium consumer tiers, respectively) in favor of a simpler AI PC branding scheme: “Omni” branding for consumer PCs (desktops and laptops), and “Elite” branding for consumer PCs. Consumer laptops became “OmniBook,” commercial laptops “EliteBook,” all-in-one desktops either “OmniStudio” or “EliteStudio” (depending on the target segment), and “OmniDesk” and “EliteDesk” representing more traditional desktops aimed at consumers and businesses. Lastly, numeric identifiers provide additional context for each product segment: Consumer PCs feature odd numbers (3, 5, 7, etc.), while business PCs are represented by even numbers (2, 4, 6, 8, etc.). The top two tiers will be marked with either X or U (short for “Ultra”). This reset of HP’s PS branding reflects how much the AI PC refresh plays into HP’s strategy and growth expectations going into 2025.
“Our expectation,” Lores confirmed in May, “is that three years after launch, AI PCs will represent between 40% and 50% of total PC shipments.” HP’s outlook is generally aligned with our expectation that AI PCs – including Copilot+ PCs – could rise to represent 1 out of 5 of all new PC shipments by year-end.
The upcoming quarter should provide a much clearer picture of the Copilot+ PC category’s early traction as more businesses and consumers dip their toes more seriously in the AI PC waters. Caveat: The category may struggle to find its pace to scale until both AMD and Intel (and x86) have been fully incorporated into the Copilot+ ecosystem alongside Qualcomm’s Snapdragon X platform. HP’s impressive AMD-powered OnmiBook Ultra announcement, sporting a whopping 55 TOPS-on-the-NPU spec, indicates that HP intends to get there ahead of its PC OEM rivals.
Caveats aside, Personal Systems’ net revenue of $9.4 billion (up 5% YoY) for the quarter, especially with a 6.4% operating margin, is good news. Despite disappointing consumer segment numbers, I expect to see evidence of AI PC demand momentum in the commercial and consumer segments as early as next quarter.
Note that this refresh cycle isn’t happening in a vacuum: Microsoft’s scheduled end of support for Windows 10 next fall will likely accelerate IT departments’ PC upgrade efforts between now and October 2025.
Printing – Printing net revenue for the quarter was $4.1 billion, down 3% YoY (down 2% in constant currency) but delivered a robust 17.3% operating margin. Note that this is a sequential drop from Q2, which had delivered $4.4 billion and a 19% operating margin. HP’s print business is still turning impressive numbers, but as revenue and profitability continue to slip, HP may be under renewed pressure to find ways to turn the trend around. However, HP’s efforts to reverse the trend appear to be gaining traction, as Q3’s -4% YoY stat seems to be tapping the breaks on YoY slippage compared to Q2’s -8% YoY performance.
More positive indicators confirming this trend: The Consumer Printing segment’s net revenue for the quarter was up 2%, a considerable improvement from Q2’s -16% YoY slippage. Q3’s Commercial Printing segment’s net revenue, down 5%, also reflected improvement from Q2’s 12% drop YoY. We observed a similar amelioration in supplies (net revenue was only down 2% compared to 5% in Q2) and total hardware units (down 2% compared to 17% in Q2). Consumer Printing units came in flat, with Commercial Printing units down 4%, and both improvements were from Q2’s 17% YoY drop. In summary, while HP’s Print business continues struggling to find growth, it is at least showing signs of reversing its downward trend in some areas and tapping the brakes on its negative growth in others.
As already discussed in Q2, what may be missing from HP’s Print business equation is a mix of (1) increased market awareness for how much better printers and the printing experience have become since technology users stopped using printers daily, (2) re-energizing PC-Printer attach rates, especially as the PC refresh supercycle opens new UX and value-add opportunities for the category. HP could engineer a path back to YoY growth for every piece of its Printing business once the PC refresh cycle slips into gear.
Read HP’s full Q3 2024 Earnings press release here.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discusses HP’s 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.
Other insights from The Futurum Group:
HP Q2 2024 Earnings: HP’s PC Refresh Supercycle Opportunity
HP’s New OmniBook Ultra 14-inch Next Gen AI PC
New Snapdragon-Powered Copilot+ Windows PCs
Author Information
Olivier Blanchard has extensive experience managing product innovation, technology adoption, digital integration, and change management for industry leaders in the B2B, B2C, B2G sectors, and the IT channel. His passion is helping decision-makers and their organizations understand the many risks and opportunities of technology-driven disruption, and leverage innovation to build stronger, better, more competitive companies.
