Despite facing three major headwinds – CPU chip shortages, currency volatility and U.S. tariffs – HP Inc.’s executive team says the company is laser-focused on three core objectives: continue to produce predictable earnings and cash flow, outpace the markets in which it competes and unearth new opportunities in “as a service” and other markets.
“We’re focused on things that made us successful in [fiscal] 2018, including innovation, execution and cost management,” HP Inc. President and CEO Dion Weisler said during a conference call following the company’s Nov. 29 release of its fiscal 2018 earnings. “Short-term category headwinds do not diminish our excitement about this business and will not derail our long-term strategy.”
During the call, Weisler said a shortage of CPUs from Intel would affect HP’s personal systems revenue in the first and second quarters of fiscal 2019. The shortage is having an impact on both high- and low-end systems at a time when HP sees strong demand in its personal systems business. The company is working closely with vendors and partners to help soften the impact on customers.
“Specific to personal systems, we expect CPU supply constraints through the first half of 2019, said Steve Fieler, HP chief financial officer. “Regarding the overall basket of components and logistics, we expect the cost to improve compared to Q4 levels. This should offset some of the increased currency headwinds, assuming the market is not incrementally more competitive.”
HP’s personal systems revenue rose 13 percent year-over-year to $37.7 billion for fiscal 2018, which ended Oct. 31. The printing business posted revenue of $20.8 billion, an 11.1 percent gain from the year before.
The company posted fiscal 2018 net revenue of $58.5 billion, up 12% from the year before. Fiscal 2018 GAAP diluted net earnings per share reached $3.26, above the previously provided outlook of $2.82 to $2.85 per share. Fiscal 2018 non-GAAP diluted net EPS was $2.02, which was within the previously provided estimate of $2.00 to $2.03 per share.
HP continues to concentrate on cost control, innovation and tapping the right market segments, Weisler said previously during investor conference calls and meetings this year. At the Citi 2018 Global Technology Conference in September, Weisler said: “There’s a competitive world out there when you’re doing well. When your business is growing double digits, and the competitors are not, or they’re going backward in many respects, they are spending, you can imagine, hundreds of hours trying to figure out what we’re doing. And the more we tell them what we’re doing, the more they copy. And so rather than doing that, we just play our own game.”
Tapping ‘as a Service’ Opportunities
One of HP’s “growth pillars” that Weisler mentioned is Device as a Service (DaaS), which delivers a service model designed to simplify how organizations source, support and manage IT using data and analytics. DaaS, which is available directly from HP as well as its channel partners, is significant because “60 percent of IT organizations tell us their resources are increasingly taxed by device management and 80 percent of their costs are coming after the PC is purchased,” Weisler explained.
Other growth areas include gaming and commercial virtual-reality (VR) solutions in the personal systems business as well as 3D and other new-generation printing technologies. HP is stepping up its games in the A3 business, a $55 billion space in which HP’s market penetration has been significantly smaller compared with its A4 market lead. HP’s purchase of Samsung’s printing business will help boost its A3 business as will the planned acquisition of Apogee, which is slated to close at the end of this calendar year; the two deals are aimed at speeding HP’s transition to printing/copying as a service.
At HP’s security analysts meeting in Oct, the company estimated its fiscal 2019 GAAP diluted net EPS would be in the $2.04 to $2.14 range and non-GAAP diluted net EPS to be $2.12 to $2.22.
However, during the Nov. 29 earnings call, Fieler said: “Looking forward to FY ’19, keep the following in mind related to our overall financial outlook. Based on recent moves in the U.S. dollar, we are expecting an increased headwind from currency compared to the end-of-September rates we used in the outlook we provided at [the security analysts meeting]. Our plans to mitigate previously announced and implemented China/U.S. tariffs are on track. As described at [the meeting], we expect the headwind to be larger in the short-term and reduce throughout the year. We have not considered any impact from unannounced tariffs or any significant demand changes that may result from an increase in geopolitical uncertainties.”
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