Q1 2025 Earnings Summary
- HP's commercial PC revenue grew 10% year-over-year in the latest quarter, demonstrating strong performance and providing confidence in future projections.
- HP expects to grow faster than the market, focusing on profitable premium categories, higher ASPs due to a mix shift towards AI PCs, and significant innovation, which will improve revenue and margin profiles.
- HP's acquisition of Human will accelerate its AI and software capabilities, particularly in deploying AI at the edge and enhancing seamless integration between devices, strengthening its position in the future of work.
- HP's significant earnings improvement in the second half may be overly optimistic, as such an increase has never happened historically, even during previous restructuring efforts. Analysts express skepticism about the company's ability to achieve a 33% increase in earnings in the second half, especially considering uncertain tariff environments and disappointing PC uptake over the last several quarters.
- Uncertainty around tariffs and the geopolitical environment could negatively impact margins and earnings. The company acknowledges that tariffs on China impact their Personal Systems business, and although they are taking mitigating actions, there is a risk that additional tariffs could be implemented, which may not be fully offset in the near term. This could pressure margins and affect profitability.
- Competitive pressures in the Print business and potential structural disadvantages due to currency headwinds may hinder HP's ability to grow or maintain margins in this segment. Despite the company's assertion that the competitive environment is not worsening, analysts are concerned about the pricing power of competitors and the ongoing strength of the U.S. dollar, which could create longer-term structural disadvantages for HP in the Print market.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +2.5% (from $13,185M in Q1 2024 to $13,504M in Q1 2025) | Revenue growth was driven primarily by improvements in key segments such as Personal Systems—bolstered by commercial market momentum and product refresh cycles—building on a prior period recovery. |
Personal Systems Revenue | +4.7% (from $8,809M to $9,224M) | Increases in market share in the commercial segment and a strategic emphasis on premium categories (including AI PCs) and Windows 11 refresh dynamics contributed to higher unit volumes and better pricing, reinforcing trends seen earlier. |
Printing Revenue | -2.4% (from $4,375M to $4,269M) | Declining revenue in this segment reflects continued competitive pressures and softer demand, which adversely impacted average selling prices and volumes—issues that had begun affecting previous periods as well. |
Corporate Investments | +450% (from $2M to $11M) | The significant rise indicates increased expenditures on incubation projects and digital enablement initiatives, marking a strategic shift from earlier lower levels and laying the groundwork for long-term growth. |
Operating Income | -9.6% (from $935M to $845M) | Operating income contraction resulted from rising costs—including higher SG&A and R&D expenses—and margin pressures that built upon previous period challenges in cost management and competitive pricing. |
Net Income | -9% (from $622M to $565M) | The decline in net income primarily stems from the combination of reduced revenue quality, elevated operating expenses, and competitive pricing dynamics that continued to exert pressure from prior analyses. |
Basic EPS | -4.8% (from $0.63 to $0.60) | A lower Basic EPS mirrors the drop in net income and reflects the impact of increased expenses and revenue mix shifts, consistent with challenges observed in the previous period’s performance. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Non-GAAP EPS | FY 2025 | $3.45 to $3.75 | $3.45 to $3.75 | no change |
GAAP EPS | FY 2025 | $3.06 to $3.36 | $2.86 to $3.16 | lowered |
Free Cash Flow | FY 2025 | $3.2B to $3.6B | $3.2B to $3.6B | no change |
Revenue Growth | FY 2025 | Expected growth both YOY at the total company level, with strength in Personal Systems offsetting a likely decline in Print | Personal Systems expected to grow faster than the market and Print expected to grow at least in line with the market | no change |
Non-GAAP EPS | Q2 2025 | no prior guidance | $0.75 to $0.85 | no prior guidance |
GAAP EPS | Q2 2025 | no prior guidance | $0.62 to $0.72 | no prior guidance |
Personal Systems Operating Margin | Q2 2025 | no prior guidance | Lower half of 5% to 7% range | no prior guidance |
Print Operating Margin | Q2 2025 | no prior guidance | Near top of 16% to 19% range | no prior guidance |
Personal Systems Revenue | Q2 2025 | no prior guidance | Expected to perform better than typical seasonality due to strength in commercial | no prior guidance |
Print Revenue | Q2 2025 | no prior guidance | Expected to grow year-over-year in line with full-year growth rates | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
GAAP Diluted EPS | Q1 2025 | $0.57 to $0.63 | $0.59 | Met |
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China Tariffs Impact
Q: Can you quantify the impact of the China tariff in the guidance?
A: HP has included the added costs driven by the current tariffs in China in both Q2 and the full-year guidance, mostly impacting the Personal Systems business. Roughly one-third of revenue is generated in the U.S., and by the end of FY'25, less than 10% of this revenue will come from China and be subject to the tariff. HP is leveraging its global supply network to mitigate the impact by moving production to other countries. -
Earnings Ramp Confidence
Q: How confident are you in achieving the significant earnings increase in the second half?
A: HP is confident in the EPS guidance and the ramp between the first and second half due to expected improvements in both revenue and cost. On revenue, they anticipate more pronounced Personal Systems seasonality tied to the PC recovery, Windows 11 refresh, and the ramp of AI PCs, leading to higher ASPs. On cost, they expect reduced commodity costs, incremental savings from their future-ready plan, and a step-down in corporate other costs. -
Personal Systems Growth Drivers
Q: What are the main drivers behind Personal Systems growing faster than the market?
A: The key drivers are the aging of the installed base, the Windows 11 refresh, and the penetration of AI PCs. HP is performing well by driving significant innovation, leveraging a strong sales team, and focusing on growing in the most profitable premium categories, which impacts results and will continue through the end of the year. -
AI PC Adoption
Q: What updates do you have on customer adoption of AI PCs?
A: HP expects AI PCs to compose around 25% of PC shipments this year, slightly higher than the previous 20% estimate. They continue to project adoption between 40% and 50% in two years. The average selling price is expected to be 5% to 10% higher than current PCs, driven by the penetration of AI PCs. -
Tariff Inclusion in Guidance
Q: Are you incorporating a 10% or 20% tariff rate from China in your guidance?
A: HP is including only the official first 10% tariff increase in the guidance. They are not speculating on potential future tariffs. They plan to manage the situation by focusing on profitable growth and may use cost advantages from tariffs to adjust pricing or invest in other areas. -
Commodity Costs Impact
Q: When will the current commodity cycle become a tailwind to margins?
A: HP expects commodity costs to remain a headwind for margins for the full year but anticipates quarter-over-quarter improvements starting in Q2. They will manage pricing depending on the competitive environment, aiming for profitable growth. -
Print Business Competitiveness
Q: How do you view the competitive environment in print, especially in China?
A: HP continues to see a competitive environment in the print business but not more competitive than in recent quarters. They are performing well in Supplies, growing share overall, and remain focused on driving profitable growth in more profitable customer segments. -
Windows 11 Refresh
Q: Are businesses more confident in refreshing devices due to Windows end-of-life?
A: There is an acceleration of the Windows 11 refresh, with the funnel growing significantly in the last two quarters. Customers are more aware and ready to drive the refresh, and they see the need to buy later-generation products with AI capabilities and better communication features. -
PC Demand Across Segments
Q: Can you provide more color on PC demand across different segments?
A: Last quarter, HP saw unit growth in both consumer and commercial spaces. Consumer growth was driven by lower-end products, while commercial was more balanced. Growth occurred in government, enterprise, and SMB sectors, with declines only in education. They focused on premium categories where growth is solid.
Research analysts covering HP.