HP: ‘Worsening Consumer Demand’ Takes Toll As Notebook Sales Plunge

Commercial business remained above water for the company with modest gains, but consumer device and print sales sank further as economic headwinds take a big toll. CEO Enrique Lores signaled a cooling down on the commercial business for Q4 as well.

HP CEO Enrique Lores (Photo by Shane Snider)

Signs of rough economic waters for the tech industry continued as HP Inc. released third quarter earnings Tuesday showing big drops in consumer hardware sales – with notebook revenue off by 32 percent year over year -- and signs that business device sales were beginning to suffer.

The Palo Alto, Calif. IT giant’s net revenue for the quarter was $14.7 billion, down 4.1 percent from the prior year. Consumer net revenue decreased 20 percent, while commercial (business systems) revenue increased 7 percent. Personal systems net revenue was down 3 percent year over year to $10.1 billion. Printing net revenue was $4.6 billion, down 6 percent year over year. Commercial printing units were down 15 percent year over year.

HP had surprised analysts in Q2 with better-than-expected results. This time, the tech giant couldn’t brush off macroeconomic realities hitting just about every company’s balance sheet. Consumers are being affected especially hard as inflation holds steady globally – striking a blow at HP’s less expensive consumer lineup.

HP’s Lores said in a call with CRN and a handful of analysts before the official earnings release Tuesday that the company was making “progress” despite a challenging economic environment. “We made continued progress on our strategic priorities… driven by our discipline, cost management and pricing… But like many other companies, revenue was impacted by worsening consumer demand,” he said.

Lores said the cooldown on the consumer side will likely replicate for the commercial PC side in the next quarter. “We expect that tough environment to continue in Q4,” he said.

Lores said the company is poised to grow in the future thanks to the $3.3 billion acquisition of Poly (the completion of which was announced just a day before the earnings call). The company is leaning heavily into hybrid work solutions and Poly’s videoconferencing advances will be key to unlocking that potential, Lores said.

Responding to a question about Poly’s integration with HP’s channel program, Lores said the two programs will stay separate for now, but he expects Poly to begin showing profitability for HP sometime in 2023.

He told CRN, “From an integration perspective, from a channel perspective, we are going to start enabling co-selling from both sides to make sure that we maximize the opportunity.” He said he expects the channel programs will begin fully integrating in 2023. “In the short term, we are going to maintain two (channel) teams).”

Mike Turicchi, vice president of Gainesville, Va.-based NCS Technologies and an HP partner, said the Poly acquisition would be a huge positive for solution providers in the years to come. “We see the acquisition as a positive addition to the HPO product portfolio,” he said. “With the integration of the two companies, there is no doubt the peripherals will work with the systems – no compatibility issues.”

There were some other bright spots in the earnings report. The company’s growth portfolio, including gaming, peripherals, consumer subscriptions, workforce solutions and industrial graphics saw double-digit growth, on track to exceed $10 billion in 2022. The third quarter also saw $1.3 billion returned to shareholders in the form of share repurchases and dividends. Adjusted earnings per share was $1.08, up from $.92 in the prior-year period. Despite the drops in hardware revenue, commercial net revenue increased 7 percent year-over-year.

HP stock was down 4 percent to $29.80 in after-hours trading Tuesday.