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HP Inc. is continuing to adjust to what CEO Dion Weisler is calling the “new normal” in a PC market that continues to contract and to change in hopes of reinvigorating sales.
For HP, that means cutting costs while driving innovation around new form factors, and balancing the drive to focus more time and effort in the premium PC and printer markets with the need to keep a strong presence in the lower-cost system space. All this comes with the expectation that the global PC market may see an upswing later this year and into 2017 as new systems hit the market and businesses and consumers begin to replace their older PCs, many of which have been around for four or more years.
Much of the tension was seen this week when HP released its latest quarterly financial numbers, which showed an 11 percent year-over-year decline in revenue—to $11.6 billion—amid continued weakness in the PC space and struggles with the company’s printer business. HP officials are countering that with an aggressive cost-cutting strategy that they say will save $1 billion in expenses this year and includes up to 3,000 job cuts, with 1,200 employees already exiting over the past two quarters.
Despite the numbers, Weisler was upbeat on a conference call with analysts and journalists May 25 to discuss the quarter. Revenue was within the company’s expectations, he said, and surpassed financial analyst expectations. In addition, HP in the past six months has released more than a dozen new PC and printer products, including the Elite x3 smartphone that can use docking modules to work like a PC, the ultrathin Spectre laptop and a new Chromebook. The company also launched a number of new business printers as well as a commercial 3D printing system.
Weisler said HP performed well on its three key objectives: slashing corporate costs, offering “rational” pricing for its core products to offset the sharp declines in average selling prices in the market and shifting its focus toward growth areas.
“A key to success in competitive markets is product differentiation and innovation,” Weisler said, according to a transcript on Seeking Alpha. “It’s thrilling to see the innovation coming out of HP supporting our core growth and future initiatives.”
Jack Narcotta, senior analyst with Technology Business Research, wrote in a research note that HP stands to gain in some parts of the market, but that the company is still plagued by many of the market forces that have been there since before the breakup of Hewlett-Packard into two entities more than six months ago. Narcotta wrote that he expects HP “to gain momentum in the more lucrative segments of the computing devices and printing marketplaces by focusing on premium PCs, higher-performance Chromebooks and printing segment-wide advances in commercial printing technology. However, the company’s financial performance contrasts with the optimism touted by executives.”
The challenge will be “crafting the right mix of products and strategy that enables it to reverse declines instead of enduring them,” he wrote.
While the company has seen growth in its commercial notebooks and mobility businesses and is making headway in the growing premium consumer space—all of which will help drive up profit per unit—HP still has to grapple with a struggling global PC market and other product segments, Narcotta wrote.
HP Inc. Adjusts to the ‘New Normal’ in PC Market
Industry analysts this year have said the PC market continues to decline. Canalys earlier this month reported that in the first three months, global PC shipments fell 13 percent from the same period in 2015, dropping to levels not seen since 2011. The numbers echoed what analysts with IDC and Gartner also have seen, though some are hopeful that the combination of Windows 10, new systems with more powerful processors and the growing popularity of Chromebooks may lead to a modest rebound over the next several quarters.
That would be welcome news to PC makers like HP, Lenovo, Dell and Acer.
Weisler said he agreed with the overall assumptions the analyst are making.
“We see continued declines in calendar quarter two, the markets projecting that it will improve in calendar quarter three and four, and we tend to disagree now whether it’s low single digits or mid-single digits,” he said. “I guess that’s up for debate and no one is perfect making those predictions, but I think things are getting better.”
HP officials also said they expect the company’s printer supplies business, which includes ink and which showed a 16 percent decline in revenue, to $3.1 billion, should stabilize in 2017 as the company makes changes to how its sells supplies and printers.
Weisler also talked about the blurring lines between systems and devices and said that vendors need to take a more holistic view of the market.
“Technology is not going to slow down; it’s only going to accelerate,” he said. “I think we’ve got to start looking as an industry at the entire spectrum all the way from phones to workstations. … Think about how those hard lines were characterized in the past and how those hard lines will begin to break down in the future.”
The company also is beginning to look beyond its core PC and printing businesses. Earlier this month, HP launched HP Tech Ventures, a corporate venture arm that will invest in startups in such areas as artificial intelligence, immersive computing, robotics, drones, wearable devices and the Internet of things.