HP Inc. (NYSE:HPQ) the arm of post-split Hewlett Packard that sells PC and printers, recently released Q1 2016 results that beat analyst estimates, but which contained notable weaknesses nonetheless. HP Inc. reported first quarter revenue of $12.25B, representing a huge 12% Y/Y decline but still $50M above estimates. Non-GAAP EPS of $0.36 also represented a 12% Y/Y decline but was in-line with expectations.
Looking at HP Inc’s segment performance, it becomes clear that HP is still a company deep in the throes of a severe revenue tailspin. Personal Systems net revenue was down 13% Y/Y with the commercial segment declining by 11% while the consumer segment posted a 16% revenue decline. Total units sold were down 13%; desktop units were down 13% while notebook units declined by 8%.
Printing revenue did not fare well either after falling by a sharp 17% Y/Y. Total hardware units sold declined 20% with commercial units falling 15% and consumer units contracting 23%.
CEO Dion Weisler defended HP Inc’s performance saying the company’s PC business outgrew the market during the quarter (calendar Q4 2015) and that HP hit an all-time high commercial PC market share of 24%. But what Weisler ignored to tell investors is that HP Inc’s overall PC business declined by a much bigger margin compared to the market courtesy of poor performance by the consumer segment. Gartner estimates that PC shipments declined 8.1% Y/Y during the fourth quarter, which implies HP Inc’s reported 13% decline in unit sales was much sharper than the market average. IDC pegs the market decline at 10.6% during the quarter which implies that HP Inc’s reported decline in unit sales was still worse than the market average.
However, there was a silver lining too. HP Inc. reported personal systems net revenue decline of 13% which was the same as the decline in unit sales. This implies that HP Inc’s PC average selling price (ASP) remained flat, which is a positive sign that things are stabilizing. The ongoing woes in the PC market are well-known to investors and at this point are probably fully priced into HP Inc. stock. The PC market is expected to remain depressed in 2016 and start recovering in 2017. My fellow Amigobulls contributor Alex has done a good job analyzing the situation in-depth in this article here so I will not dwell much on it.
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