In the calendar for computer and office equipment maker HP Inc., it recently wrapped up the third quarter of fiscal 2023 and the company reported a 9.9% year-over-year decline in revenue to $13.2 billion. Year-over-year, revenue fell 7.4% and the company’s full-year earnings guidance had to be lowered due to underactivity in demand recovery and weakness in the Chinese economy.
According to Bloomberg, the company previously expected to end the fiscal year in October with free cash flow of $3.25 billion, but now prefers to downgrade guidance by $250 million. Earnings per share at the end of the fiscal year will not exceed $3.25, versus $3.5 previously included in guidance. According to the company’s CEO “Demand is not recovering as quickly as expected”.
Inventory levels are still above industry standards, prices are not increasing and corporate customers are saving money. After all, the Chinese economy is not recovering as quickly as market participants would like after the lockdowns last year. So far, HP Inc. had hoped for a seasonal pick-up in PC demand in the second half of the year, but the deteriorating full-year guidance suggests we are becoming less reliant.
Incidentally, the company’s revenue for the last quarter fell short of analysts’ expectations, who valued it at $13.4 billion. In the consumer segment, revenue from PC sales fell 12%, better than expected, but in the business segment, revenue fell 11%, disappointing investors more than expected. Sales of HP Inc. Personal systems accounted for 68% and printing equipment and consumables for 32%.
In its most recent quarter, the company’s revenue was most dependent on sales of PCs in the commercial segment (up 47%), the consumer PC market accounted for just 21% of HP Inc.’s revenue, and printing supplies accounted for another 21% out of %. Sales of printing equipment in the commercial segment brought the company 7% of quarterly revenue, compared to just 4% in the consumer segment. Non-GAAP operating income for the most recent quarter was $1.4 billion, of which 57% came from printing systems and 43% from personal systems. The operating profit margin in the first sector reached 18.6% while in the second it was capped at 6.6%.
In the personal systems segment, the consumer market accounted for 31% of HP Inc.’s core sales, while the commercial market accounted for 69%. Overall toward Personal Systems last quarter, HP Inc. gained $8.9 billion, down 11% year-on-year and 8% sequentially on a constant currency basis. In fact, revenue actually rose 9% sequentially.
In real terms, the number of residential systems shipped during the quarter increased 3%, while the consumer segment increased 8% and the commercial segment was flat year-over-year. Under such difficult conditions, HP Inc. managed to increase its market share in the past quarter, the company’s CEO admitted. There is indeed a growth in demand, which he believes will only be slower than expected three months earlier.
Printing equipment sales declined 7% year over year to $4.3 billion, down 5% sequentially. Analysts were expecting an average value of $4.57 billion, so these results disappointed them. In the printing systems segment, 65% of sales came from consumables, 23% from commercial equipment, and the consumer sector accounted for just 12% of core sales. At the same time, the supply of pressure equipment fell by 19% compared to the same period last year. In the commercial segment, core sales declined 28%, while the consumer segment saw a limited 6% sales decline. The sale of consumables pleased management with a decline in sales of only 2% compared to the previous year.
Shares of HP Inc. The price fell 5.5% after the main trading session ended, reflecting investors’ disappointment with the pace of demand recovery in the PC market.