Hewlett-Packard Likely To Keep Outperforming The PC Hardware Market

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Hewlett-Packard Incorporated (NYSE:HPQ) is set to announce its fiscal Q3 results on Wednesday, August 23. While we expect the company to report an improvement in PC revenues as the company continues to outperform the declining PC hardware industry, printer hardware and supplies revenues are also likely to improve as HP’s supply chain strategy yields positive results. Below we discuss what to expect in more detail.

For precise figures, please refer to our full analysis for Hewlett Packard Incorporated

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The Personal Systems division is HP’s second-largest division and accounts for around 41% of its value, per our estimates. The decline in the global PC industry continued in Q2 2017, as global PC shipments declined by 4.3%. According to Gartner estimates, global PC shipments declined to 61.1 million in Q2 2017, while HP’s PC shipments grew by 3.3% to 12.69 million in the same period. This could translate into revenue growth for the company during the quarter.

Furthermore, the company continues to target the premium range of PCs with its new releases. As a result, we believe that the average selling prices (ASPs) of HP’s PCs improved due to a shift towards the premium category. Additionally, we also expect improvement in margins for this segment due to the increased sales of high-end PCs, which have higher margins in the relatively commoditized PC market.

Printer Segment Revenues To Improve

HP’s printer division is its largest division, and we estimate that it accounts for about 59% of its value. In Q1 2017, IDC estimated that the worldwide hardcopy peripherals (HCP) market grew 1.2% year over year with more than 23.4 million. It also estimated that HP’s shipments grew by 3% as the company continued to maintain its leadership in the space. We expect this trend to persist in fiscal Q3, and forecast HP’s share in shipments to improve. Additionally, since the underlying hardware industry is witnessing some resurgence, it will continue to positively impact HP’s revenues in the quarter and the remainder of 2017.

Furthermore, we believe that HP’s channel inventory sales have picked up, as the company has changed its supply model. We expect that as the company continues to tweak its supply chain management strategy, its supplies revenues will improve in Q3.  We also expect ASPs to grow both sequentially and year over year, driven by both mix (more laser printer sales compared to inkjet) and pricing.

At present, we have a $18 price estimate for HPQ’s stock, which is in line with the current market price.

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