While Q4 printer outlook is weak, HP says it’s gaining share in PCs

Hewlett-Packard said its outlook for the current quarter is weaker than expected due to falling printer demand, but Dion Weisler, president and CEO of HP, expressed optimisim in an analyst earnings call because the company is gaining share in personal computers.

HP beat analysts’ estimates for its third fiscal quarter results in both revenues and non-GAAP earnings per share. But the company said its estimate for the fourth fiscal quarter, ending in October, will be 34 cents to 37 cents a share, lower than analysts’ anticipated 41 cents per share. That reveal evidently caused HP’s after-hours stock price to fall 4.5 percent.

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Weisler said in the call that the personal computer market share was up in the third quarter (which ended July 31). Personal Systems revenue was flat compared to a year ago, but consumer PC revenue was up 8 percent, while units shipped were up 4 percent. HP saw a 12 percent gain in notebooks and a 6 percent drop in desktops.

Weisler attributed the gains in consumer PC market share to HP’s bid to move into the upscale market with high-end laptops, such as the HP Spectre 13 ultra-thin laptop, and gaming PCs like the HP Omen PC gaming rig. He said HP was “innovating with sprinkles of magic.”

But HP’s printing business is having a tough time. Printing revenue was down 14 percent from a year ago. Commercial printing was down 2 percent and consumer revenue was down 14 percent. Weisler did say that the rate of decline in printers was slowing, compared to past quarters. Cathie Lesjak, chief financial officer, also credited Brexit as possibly hurting demand in Q4.

“It’s unclear what the impacts will be,” Lesjak said. “It’s really what will be the impact on demand, in the U.K., and if it spreads to EMEA.”

Weisler said that HP would spend more money on supplies in order to insure it has what it needs to build its products. Inventory will go up during Q4 because HP is spending more on components.

As far as employment goes, HP shed about 1,000 people during the quarter, and it is down 2,300 jobs so far this year. The company expects to be down 3,000 employees by the end of the fiscal year.

In the third calendar quarter ending September 30, analysts are expecting that PC sales will be weaker, relative to the second quarter. Weisler said he agreed with that assessment.

“HP had the most promising quarter since they spun out of Hewlett-Packard a year ago,” said Patrick Moorhead, analyst at Moor Insights & Strategy. “Earnings were above outlook and it appears as if they are on track for full year EPS. While PCs had a surprisingly good quarter, printing was hit hard due to an inventory rebalance but also losing some inkjet share, driven by yen changes. HP’s prime inkjet competitors are from Japan, and it is impacting the company.”

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He added, “The overall PC and printer market is depressed, so analysts, particularly industry analysts such as MI&S, must evaluate the company on share gains, innovation, execution, in addition to the financials. Unit share gains in the premium PC space mean a lot as a company must have a ‘best’ to accompany a ‘good’ and ‘better.’ Having a ‘best’ offering raises overall average selling prices across the entire line. HP went far too long without this and their premium notebooks and desktops are among the best in the industry. I like what I see so far with HP’s new Omen line and approach to gaming, Spectre 13 and the EliteBook Folio G1.”