Hewlett-Packard Incorporated’s Earnings Preview: Revenues To Decline As Volume And Price In Underlying Industry Shrinks

HP Inc. (NYSE: HPQ), which consists of the  personal computer and printing businesses, is set to declare results for the first fiscal quarter ended January 31, 2016 on Wednesday, February 24th. ^[1] This will be the first time that the company will declare its results as an independent entity  post its split from HP Enterprise (NYSE:HPE), the business comprised of the erstwhile Enterprise hardware businesses (servers, storage, and networking), the software business, HP Services,  and the Financial Services business. While the company continues to lead both the PCs and Printer industry, the declining volume together with lower prices is affecting its topline. In this earnings, we expect that the decline in respective industry will once again impact the topline growth and guidance of the company.

We are in the process of updating our financial model to reflect the change in business operations (split of company into HPQ and HPE) based on the financial statements of the standalone entity.

See our full analysis on HP

PC And Workstation Division

According to IDC, worldwide PC shipments experienced a decline of nearly 10.6% in the fourth quarter of 2015. ^[2] HP, which is the second ranked PC manufacturer, was most affected by this trend, and reported a 10.1% decline in shipments. Considering the intense competition in the PC industry, we believe that the price per unit for the company continues to decline. As a result, we expect that this decline in shipments and prices will hurt HP’s top line and bottom line performance in Q1 FY2016.

Printing Division

According to IDC, the worldwide hardcopy peripherals market shipment declined by 6.3% in Q3 2015. ^[3] The data also indicates that demand for both inkjet and laser printers faltered in Q3, as was the case in H1. However, shipments of basic and managed print services (MPS) devices continue to grow, posting more than 380,000 units in 3Q15. Furthermore, high-end color laser devices (45 ppm+) recorded double-digit year-over-year growth (15.3%). We believe this trend was prevalent in Q4 as well, and this would impact revenue growth at HPQ. Furthermore, we also expect that HP’s market share was under duress due to aggressive pricing from Japanese competitors in the printing business, primarily due to the weakness of the Yen. This would further impact HP’s top line and bottomline growth.

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1. HP Inc. to Announce First Quarter Fiscal Year 2016 Earnings on February 24, 2016 [↩]
2. PC Market Finishes 2015 As Expected, Hopefully Setting the Stage for a More Stable Future, According to IDC, January 12, 2016, www.idc.com [↩]
3. Business Inkjet Market Continues Its Growth Trajectory with 16.3% Year-Over-Year Growth in the Third Quarter of 2015, According to IDC, December 8 2015, www.idc.com [↩]