Reviewing HP’s Performance In 2017

HP Inc. (NYSE:HPQ) operates in two highly commoditized markets, the PC market and the Printer and Peripherals market. Nevertheless, HP’s performance in fiscal 2017 was better than expected, as it not only launched a host of new products but also leveraged these launches to generate more revenues and outperform the underlying industries. Additionally, following its separation from HP Enterprise (NYSE: HPE), the company was able to improve its focus on the remainder of the business. In this note, we discuss HP’s performance in 2017.

For precise figures, please refer to our full analysis for HP Inc.

New Launches In The PC Segment Bode Well For The Company

The Personal Systems division is HP’s second-largest division, and accounts for over 40% of its total value, per our estimates. The secular decline in the global PC industry continued in the first nine months of the year, and is expected to decline further in the fourth quarter. According to Gartner, global PC shipments declined by over 3.5% in the first nine months of 2017, while HP’s PC division shipments grew by 5.3% in the same timeframe.

Additionally, for FY17, HP’s PC revenues – which include sales of desktop and laptops – have grown by 11.7% y-o-y to $30 billion. The average sales price for the first nine months of calendar year 2017 has grown by 7% y-o-y from $537 in 2016 to $575 in 2017 (nine months). In 2017, HP has launched a host of new PCs such as the Spectre portfolio and Omen X gaming laptop. Some of its new launches boast enhanced bios-level security and privacy features, which have been well received. We believe that these new launches should help the company post an increase in shipments in the coming quarters despite a decline in the global PC market, in line with the trend established over the last nine months.

Going forward, HPQ is well positioned in the PC market as it continues to launch premium and mid-tier PCs at competitive prices. This should help the company to report revenue growth in the ensuing quarters. Moreover, as the company is adding a value-added feature to HP’s existing product line, we believe that it will be able to sell its laptops at higher price points and potentially improve its margin profile. We also expect that its share of the market, which increased to 21.8% in Q3, will continue to improve.

Printer Segment Suffers As Change In SCM Strategy Dents Growth

HPQ’s Printer division is its largest division and makes up 59% of its value, per our estimates. In the first three quarters of 2017, while the printer hardware shipments grew by 1%, HP’s printer business outperformed the industry as its shipments grew by 2.6%. Additionally, HPQ’s revenue has grown by 5.1% to $14.3 billion during this timeframe as hardware and supplies sales improved. For the fiscal year 2017, printer and supplies revenues grew by 3% to $18.8 billion. Moreover, ASPs grew both sequentially and year over year, driven by both mix and pricing. During FY17, the company tweaked its supply chain management strategy, which resulted in 4.6% growth in supplies revenues. We believe that as the company continues to implement its new supply chain strategy, its supplies revenues will benefit in 2018.

At present, we have an $18 price estimate for the stock, which is about 10% below the current market price.

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