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HP finds a new hero in premium PCs as market turns 'volatile'

James Henderson | Aug. 29, 2016
HP reported increased PC market share, to nearly 21 percent, improving in the quarter ended July 31

“Challenging and somewhat volatile” - four words that perhaps best summarise HP Inc’s first foray into single life after 76 years.

With the ink on the divorce papers barely dry, as Hewlett Packard Enterprise also goes it alone, the tech giant is fighting back following twelve months of strife, repositioning its focus in light of increased market pressures.

As HP CEO, Dion Weisler, explained during the vendor’s third quarter financials, on the whole, the company has “delivered on our financial commitments” for the three months ending July 31.

"However, with the markets remaining challenging and somewhat volatile, we have more work to do,” he cautioned.

"We will keep our eye on cost controls, while continuing to focus on executing our strategy, protecting our core business through solid execution, delivering our growth initiatives and investing in category-creating opportunities for the future."

In reporting overall revenue and gross profit declines of 3.8 percent and 6.6 percent to $US11.9 billion and $US2.2 billion, Weisler is correct to be cautious.

Illustrating the ongoing challenges for HP, troubles remain particularly in midrange PC price bands where competition among the largest vendors is intensifying as the global PC market shrinks, coupled with challenges in implementing changes to the vendor's printing supplies inventory and go-to-market strategies.

Yet revenue decline was slower than in the past, and operating income and operating margin improved in tandem with its resurgent Personal Systems segment.

Overall operating income climbed 10.9 percent year-to-year to $US1.1 billion in 2Q16, and overall operating margin improved 130 basis points year-to-year to 9.4 percent.

Headcount reductions and other restructuring initiatives helped reduce operating expenses, but stronger margins and greater profits in the Personal Systems segment were among the primary drivers behind the overall increases.

HP’s new hero

“Rebooting its PC gaming brand and renewing its focus on the premium notebook PC segment in calendar 2Q16 highlights how HP intends pursue long-term, lucrative growth in a challenging PC market,” Technology Business Research principal analyst, Jack Narcotta, observed.

“Successfully executing on these strategies in 2Q16 fostered a significant turnaround in consumer PC markets in 2Q16 for HP, allowing this segment to counter some of the effects of declines in the midrange commercial PC and printing supplies product segments that generate the bulk of the vendor’s revenue and profits.”

During the quarter, and globally speaking, HP reported increased PC market share, to nearly 21 percent, improving its PC average selling price (ASP) despite heightened competition from Asus, Dell and Lenovo.

“Consumer demand for premium PCs, particularly thin-and-light and gaming-ready notebook PCs, will continue, a trend that validates HP’s push into the premium PC segment,” Narcotta said.

“This will promote continued margin improvement and profit recovery for HP through 1H17 even as overall revenue declines.”

 

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