HP Q2 2025 Earnings Report

HP EPS Results

• Actual EPS: $0.71
• Consensus EPS: $0.80
• Beat/Miss: Missed by -$0.09
• One Year Ago EPS: $0.82

HP Revenue Results

• Actual Revenue: $13.22 billion
• Expected Revenue: $13.09 billion
• Beat/Miss: Beat by +$134.58 million
• YoY Revenue Growth: +3.30%

HP Announcement Details

• Quarter: Q2 2025
• Date: 5/28/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, May 28, 2025
• Conference Call Time: 5:00PM ET

HP (NYSE:HPQ) provides products, technologies, software, solutions, and services to individual consumers, small- and medium-sized businesses, and large enterprises, including customers in the government, health, and education sectors worldwide. It operates through Personal Systems and Printing segments. The Personal Systems segment offers commercial personal computers (PCs), consumer PCs, workstations, thin clients, commercial tablets and mobility devices, retail point-of-sale systems, displays and other related accessories, software, support, and services for the commercial and consumer markets. The Printing segment provides consumer and commercial printer hardware, supplies, media, solutions, and services, as well as scanning devices; and laserJet and enterprise, inkjet and printing, graphics, and 3D printing solutions. The company was formerly known as Hewlett-Packard Company and changed its name to HP Inc. in October 2015. HP Inc. was founded in 1939 and is headquartered in Palo Alto, California.

HP Q2 2025 Earnings Call Transcript

Key Takeaways

• Revenue grew 5% year-over-year in constant currency, driven by an 8% increase in Personal Systems commercial demand.
• Additional tariffs reduced non-GAAP operating profit by approximately 100 basis points and cut EPS by about $0.12 in Q2.
• Mitigation efforts—including cost actions, pricing and expanded manufacturing outside China—are expected to fully offset current tariff costs by Q4 and restore PC operating margin to the 5–7% target range.
• Unveiled key AI-focused innovations: the HP Workforce Experience Platform, comprehensive AI PC portfolio, HP VGX AI station with NVIDIA and the world’s first quantum-secure printers.
• Updated FY25 outlook to $3.00–$3.30 non-GAAP EPS, with low-single-digit PC market growth, print declines and at least $2 billion in run-rate structural savings by year-end.

Presentation

[Operator]

Good day, everyone, and welcome to the Second Quarter twenty twenty five HP Incorporated Earnings Conference Call. My name is Tina, and I will be your conference moderator for today's call. At this time, all participant lines will be in a listen only mode. We will be facilitating a question and answer session toward the end of the conference. As a reminder, this conference is being recorded for replay purposes.

[Operator]

I would now like to turn the call over to Orit Kinah Najon, Head of Investor Relations. Please go ahead.

[Orit Keinan-Nahon, Global Head-Investor Relations at HP]

Good afternoon, everyone, and welcome to HP's second quarter twenty twenty five earnings conference call. With me today are Enrique Loris, HP's President and Chief Executive Officer and Karen Parkhill, HP's Chief Financial Officer. Before handing the call over to Enrique, let me remind you that this call is a webcast and a replay will be available on our website shortly after the call for approximately one year. We posted the earnings release and accompanying slide presentation on our Investor Relations webpage at investor.hp.com. As always, elements of this presentation are forward looking and are based on our best view of the world and our businesses as we see them today.

[Orit Keinan-Nahon, Global Head-Investor Relations at HP]

For more detailed information, please see disclaimers in the earnings materials relating to forward looking statements that involve risks, uncertainties and assumptions. For a discussion of some of these risks, uncertainties and assumptions, please refer to HP's SEC reports, including our most recent Form 10 ks. HP assumes no obligation and does not intend to update any such forward looking statements. We also note that the financial information discussed on this call reflects estimates based on information available now and could differ materially from the amounts ultimately reported in HP's SEC filings. During this webcast, unless otherwise specifically noted, all comparisons are year over year comparisons with the corresponding year ago period.

[Orit Keinan-Nahon, Global Head-Investor Relations at HP]

In addition, unless otherwise noted, references to HP channel inventory refer to Tier one channel inventory and market share references are based on calendar quarter information. For financial information that has been expressed on a non GAAP basis, we've included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release for those reconciliations. With that, I'd now like to turn the call over to Enrique.

[Enrique Lores, CEO, President & Director at HP]

Thank you, Orit, and thank you to everyone for joining today's call. Against the backdrop of a highly dynamic landscape, we delivered another quarter of solid top line growth, driven by continued momentum in the Personal Systems commercial business. However, due to additional tariff costs that could not be fully mitigated in the quarter, our non GAAP operating profit fell short of expectations. Today, we will take a deeper dive into Q2 performance, the evolving external environment and our outlook. I will also highlight new innovations we introduced to drive our momentum forward.

[Enrique Lores, CEO, President & Director at HP]

Let me start with our Q2 results. Overall, we delivered revenue growth for the fourth consecutive quarter with a 5% increase in constant currency year over year. We saw strong growth in Personal Systems, particularly in commercial and high value categories, driving momentum in our key growth areas. These meaningful results show that our future of work strategy is working. Nonetheless, the rapidly changing external landscape, including shifting trade policies and additional tariffs, had a net impact of approximately 100 basis points on our non GAAP operating profit, mainly in April and primarily impacting Personal Systems.

[Enrique Lores, CEO, President & Director at HP]

This resulted in a roughly $0.12 impact on our non GAAP earnings per share. By net impact, we are referring to all tariff related impacts after taking into account the mitigation actions. We swiftly responded to these changing market dynamics and were able to partially offset them in the quarter through cost actions, pricing and accelerating the transition of our manufacturing footprint. We continue to diversify our manufacturing locations so that we can best respond to geopolitical changes with agility. We have expanded our manufacturing footprint for both PCs and printers to different locations, and we recently increased our production coming from Vietnam, Thailand, India, Mexico and The U.

[Enrique Lores, CEO, President & Director at HP]

S. By the June, we now expect nearly all of our products sold in North America will be built outside of China, significantly accelerating our previous plan. However, it takes time and investment to fully mitigate such impacts. Let me now share more color on our business unit performance. In Personal Systems, revenue grew 8% in constant currency, above our expectation, driven by strong commercial performance.

[Enrique Lores, CEO, President & Director at HP]

PC commercial revenue grew 9% year over year, including strong growth in North America and Asia. As expected, we saw continued strength in AI PC demand and the Windows 11 refresh, and we believe that momentum will carry forward. We drove share gains year over year in commercial PC, particularly in premium, workstations, AI PCs and gaming. We drove growth in services with several new wins in healthcare, financial services and retail. Personal Systems operating margin came in below our guidance, largely due to higher tariffs that were not fully offset by our actions in the quarter.

[Enrique Lores, CEO, President & Director at HP]

We expect to successfully mitigate these costs and return to our long term target range of 5% to 7% next quarter. In print, revenue declined 3% in constant currency, in line with our expectation. We saw revenue growth across home and office in Europe, helping to offset a slowdown in North America and continued weak demand in China. And we continued to drive momentum in home with units up 2% fueled by strong big tank growth. We grew share year over year in developed markets, optimizing profitable share mainly in Office A for Value and AFI.

[Enrique Lores, CEO, President & Director at HP]

In our key growth areas for print, we saw continued growth in consumer subscriptions and workforce solutions, and we drove another quarter of growth in industrial graphics, supported by the portfolio launched at Drupa, confirming the high adoption of our new product introductions. Our focus remains on what we can control, executing with discipline, supporting our customers and making strategic decisions that position HP for the long term. Now let's turn to the significant strides we made in innovation. This quarter, we advanced our strategy to lead the future of work by delivering experiences that help businesses grow and employees find greater professional fulfillment. At our global Amplify conference in March, we deepened relationships with over 1,100 partners and customers.

[Enrique Lores, CEO, President & Director at HP]

We unveiled more than 80 new products and services, and the positive reactions from attendees reaffirmed our direction. A key highlight was the global rollout of the HP Workforce Experience Platform. Combining AI with real time insights, this top watch solution enables CIOs to boost productivity and address issues before they disrupt work. Feedback from our early adopters has been incredibly positive, highlighting the platform's impact on workplace efficiency and its role in improving employee satisfaction. To accelerate the adoption of AI and bring its benefits to the mainstream, we introduced one of the most comprehensive AI PC portfolios in the industry.

[Enrique Lores, CEO, President & Director at HP]

This portfolio features the redesigned HP EliteBook and EliteDesk engineered to help people work smarter and faster while keeping their data secure. To enhance advanced workflows for data scientists and AI developers, we teamed up with NVIDIA to launch the HP VGX AI station, a high performance workstation powered by Blackwell and designed to accelerate productivity and enhance security. In print, we are leading the way in security with our new LaserJet Enterprise device, the first printers in the world designed to guard against quantum computer attacks. And our industrial print team received five prestigious European Digital Press Awards, recognizing our bold vision to lead the industry for automation, productivity and sustainability. In April, we brought our latest generation of latest technology to life, engineered to simplify production and optimize printing processes.

[Enrique Lores, CEO, President & Director at HP]

Third, with our PrintHub software, print shops can now drive greater efficiency and control from a single platform. This innovation played a pivotal role in our recent collaboration with Scuderia Ferrari, where we co engineered a high performance car wrap that's up to 14% lighter and 17% thinner, translating breakthrough technology into real world speed. The advancements across our entire portfolio this quarter demonstrate our leadership in creating a secure and powerful AI stack that connects devices, data and workflows to drive meaningful productivity. In Q2, we acted quickly to address tariff related headwinds, taking decisive steps like accelerating our manufacturing rebalancing, redesigning our logistics network, shifting sourcing and qualifying new product configuration. These efforts both strengthen our operational agility and led the foundation for continued resilience.

[Enrique Lores, CEO, President & Director at HP]

We will carry this momentum into Q3 and Q4 as we further reinforce our supply chain and operational capabilities. Additionally, we have implemented price increases to help offset cost pressure. While these decisions are never taken lightly, they are essential to maintaining our financial discipline. Looking ahead, the remainder of fiscal twenty twenty five will be shaped by a range of factors, some of which remain uncertain. We have planned for today's tariff landscape and if it changes, we will respond swiftly as we did in Q2.

[Enrique Lores, CEO, President & Director at HP]

We continue to expect the PC market will grow in 2025, but softer than originally planned, driven by increased macro uncertainty. That said, we remain confident in our ability to grow faster than the market and gain share. In print, we continue to expect the market to decline low single digits for calendar year 2025. We expect the actions we are taking to gain full traction in the second half, leading to sequential operating profit improvement. We are making progress with execution of the Future Ready Accelerated Plan that we announced last quarter, and we are now expecting to exceed our goal and deliver at least $2,000,000,000 in gross annual run rate structural savings by the end of fiscal year twenty twenty five.

[Enrique Lores, CEO, President & Director at HP]

These incremental structural savings will help mitigate macro and geopolitical uncertainties while continuing to support investments in strategic areas. We are confident in our ability to navigate an evolving market. We have always excelled in managing complex environments. We have an incredible team capable of optimizing processes, implementing best practices and achieving global efficiency. As we move forward, we remain committed to delivering sustainable growth and creating long term value for our shareholders.

[Enrique Lores, CEO, President & Director at HP]

Our focus on harnessing the power of AI to make work more personal, productive and fulfilling will drive our success now and into the future. Let me now hand it over to Karen.

[Karen Parkhill, Chief Financial Officer at HP]

Thank you, Enrique, and good afternoon, everyone. We delivered another quarter of solid top line growth driven by continued momentum in the Personal Systems Commercial business, aligned with our vision of leading the future of work. We executed our strategy across multiple fronts, including growing share in high value categories across personal systems and print, driving momentum in our key growth areas and exercising disciplined cost management while continuing to invest in strategic initiatives. However, against the backdrop of a dynamic geopolitical landscape, our non GAAP operating profit fell short of expectations due to additional tariff costs that could not be fully mitigated in the quarter. As a reminder, our guidance for Q2 included tariffs in place at the time.

[Karen Parkhill, Chief Financial Officer at HP]

While we planned for a range of scenarios in the quarter and we worked aggressively to respond to changes in the regulatory trade environment, the tariff increases announced in April were higher than expected. That said, as you heard from Enrique, we made meaningful progress expanding our supply chain and manufacturing footprint, and we accelerated actions on cost reduction and pricing. However, as we indicated last quarter, the full benefit of these mitigating actions can take a few months lead time

[Karen Parkhill, Chief Financial Officer at HP]

depending on the scope. So in

[Karen Parkhill, Chief Financial Officer at HP]

the quarter, our operating margin was impacted by net tariff costs mainly in Personal Systems. Taking a closer look at the details of the quarter, net revenue was up 3% nominally and 5% in constant currency with growth across all regions. In constant currency, APJ grew 9%, Americas grew 5%, and EMEA grew 1%. And while we made progress on the cost of good reduction actions we started at the beginning of the year, gross margin at 20.7% was down year over year with increased tariff and commodity costs. We drove non GAAP operating expenses down year over year to help offset, including driving future ready cost savings, continuing disciplined cost management and reducing variable compensation.

[Karen Parkhill, Chief Financial Officer at HP]

All in, our operating margin of 7.3% was impacted by roughly 100 basis points due to unmitigated tariff and related impacts mainly in Personal Systems. Below the op profit line, non GAAP net OI and E was flat year over year in line with our expectations with lower short term borrowing costs offset by currency losses. Finally, with a diluted share count of approximately $956,000,000 shares, our non GAAP diluted net earnings per share was $0.71 reflecting the tariff and related impacts net of mitigations of approximately $0.12 Now let's turn to segment performance. We delivered another quarter of solid growth in Personal Systems with revenue up 7% nominally and 8% in constant currency, above our expectations and driven by higher commercial volumes and increased ASPs. We did see some demand pull forward, but estimate it was minimal, accounting for less than 1% of revenue growth.

[Karen Parkhill, Chief Financial Officer at HP]

As we signaled, we drove disciplined pricing action to help mitigate increased tariff and component costs and shifted mix toward premium categories. And momentum continued in our key growth areas with strong performance in AIPCs, advanced compute and workforce solutions. We also drove commercial unit growth of 11% gaining share overall and in premium categories as the market momentum and refresh activity continued. Commercial revenue increased 9% year over year with pricing actions and mix shift toward premium offset in part by currency impacts. In consumer, our results reflect our strategy to rebalance our portfolio to a more profitable mix.

[Karen Parkhill, Chief Financial Officer at HP]

We saw 2% revenue growth on lower volume through favorable pricing and mix shift including share gains in gaming. Our operating margin in Personal Systems was 4.5%, below the range we guided at the beginning of the quarter and down year over year from higher commodity costs and tariff costs that were not yet fully offset by repricing and cost reductions. It's worth noting that excluding the impact of tariff costs, our PS margin would have been well within our 5% to 7% guidance range. Turning to Print. Our results were in line with expectations as we continue to focus on profitable unit placement.

[Karen Parkhill, Chief Financial Officer at HP]

We increased our market share in high value categories and drove overall hardware unit growth. Our key growth areas continued to gain momentum, including revenue and subscriber growth in consumer subscriptions and industrial growth fueled by both hardware and supplies. Across print, revenue declined 3% in constant currency on supplies declines and hardware softness in North America. By customer segment, we grew consumer units 3% year over year led by strong growth in Big Tank. In commercial, revenue declined 3% year over year on a 2% unit decline.

[Karen Parkhill, Chief Financial Officer at HP]

We continued our purposeful focus on profitable long term unit growth gaining share in the higher value categories of A four and A three. Supplies performed as expected, down 3% in constant currency, and we drove favorable pricing and market share gains that were more than offset by installed base and usage headwinds. Yet we delivered strong print operating margins, up year over year and above the high end of our range, reflecting rigorous cost discipline and pricing actions, as well as the favorable impact of grant funding received in the quarter. We continue to execute our accelerated future ready plan across process efficiency, automation, portfolio optimization and operational excellence. And as Enrique mentioned, we now expect to achieve cumulative gross run rate savings of at least $2,000,000,000 by the end of fiscal year twenty five with no change to our estimated restructuring charges of $1,200,000,000 for the program.

[Karen Parkhill, Chief Financial Officer at HP]

These incremental structural savings continue to be a key lever to help offset macro and geopolitical uncertainties while also continuing to fuel investment in our key growth areas and AI innovation, all designed to position us well for long term sustainable growth. Now let me move to cash flow and capital allocation. Our cash flow from operations was roughly $38,000,000 in the quarter. And as expected, free cash flow was slightly negative due to the timing of payments for intentional inventory actions we took in the prior quarter as part of our overall tariff mitigation. Those payments resulted in a decrease in DPO and corresponding increase in our cash conversion cycle in Q2, also as expected.

[Karen Parkhill, Chief Financial Officer at HP]

Lastly, we returned close to $400,000,000 to shareholders through both dividends and share repurchases. A planned debt refinancing ahead of an upcoming maturity contributed to us finishing the quarter slightly above our target leverage range. So in line with our stated policy, with a temporary increase in leverage, we limited our repurchase to offsetting stock compensation dilution. As we look ahead, we will continue to navigate a dynamic environment that may be impacted by continuing evolution in global trade policy, broader macroeconomic trends and the associated impact on customer demand. For that reason, we believe it is prudent to moderate our guidance for the second half of the year to reflect this.

[Karen Parkhill, Chief Financial Officer at HP]

In our guide, we have accounted for the added cost driven by the current tariffs in place and associated mitigations, including leveraging our supply chain flexibility, future ready cost reductions and pricing actions. We were able to mitigate part of these costs in Q2 and we are confident that we will fully mitigate them by Q4. In Personal Systems, while we expect to continue to gain share, we now expect the PC market to grow low single digits for both the second half and full calendar year given the uncertain macro environment. We still anticipate commercial PC catalysts including the Win 11 refresh and AIPC adoption to drive solid revenue growth in the back half of the year. And we expect the actions we are taking to offset the cost of tariffs to gain full traction in the second half, leading to sequential improvement in Personal Systems margins in both Q3 and Q4.

[Karen Parkhill, Chief Financial Officer at HP]

In Print, we continue to expect the market to decline low single digits for the calendar year, with the second half of the year declining closer to mid single digits in line with industry experts. We also expect our operating margin to continue to be near the top of our 16% to 19% long term range for the year. Beyond the segments, we expect corporate other to be slightly higher, approaching $1,100,000,000 as we integrate the operations of our humane asset acquisition into our technology and innovation organization. With this all in, we now expect FY twenty twenty five non GAAP diluted net earnings per share to be in the range of $3 to $3.3 and FY twenty twenty five GAAP diluted net earnings per share to be in the range of 2.32 to $2.62 Turning to Q3, in Personal Systems we expect revenue to grow high single digits sequentially as we continue to see strength in Commercial aligned with our future of work efforts and pricing actions. And we expect Personal Systems margins in the lower half of the 5% to 7% range, improving sequentially as a result of the mitigation efforts we are driving.

[Karen Parkhill, Chief Financial Officer at HP]

In Print, we expect Q3 revenue growth to perform better than typical seasonality on incremental hardware placements and pricing actions. We expect operating margins solidly within our 16 to 19% range as we continue to focus on profitable unit placement, tariff mitigation and disciplined cost management. With all of this, we expect third quarter non GAAP diluted EPS to be in the range of $0.68 to $0.80 and GAAP diluted net earnings per share to be in the range of

[Karen Parkhill, Chief Financial Officer at HP]

$0.57 to $0.69

[Karen Parkhill, Chief Financial Officer at HP]

In line with our revised earnings, particularly in Personal Systems where we have a negative cash conversion cycle, we now expect free cash flow to be in the range of 2,600,000,000 to $3,000,000,000 for FY 2025. With regard to working capital, we expect our cash conversion cycle to also be impacted by the timing of purposeful actions we are taking to mitigate the fluidity of the tariff situation. It is important to note, however, that we not only expect the impact of these actions on working capital to be temporary, but as mentioned earlier, we also expect to fully mitigate the current cost of tariffs by Q4. And on our balance sheet and capital allocation, given the impact of tariffs, we expect our leverage ratio to continue to be above our target range in Q3. That said, we remain fully committed to returning approximately 100% of free cash flow to shareholders over time as long as our gross leverage ratio remains under two times and we do not see more attractive investment opportunities.

[Karen Parkhill, Chief Financial Officer at HP]

In closing, we responded quickly to the changing market dynamics in the quarter to address headwinds from a rapidly changing trade environment. We remain focused on what we can control and are confident that the actions we are taking are the right ones to position us for long term profitable growth. With that, I would like to hand it back to the operator and open the call for your questions.

[Operator]

Thank you. And we will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. And our first questioner today will be Eric Woodring with Morgan Stanley.

[Operator]

Please go ahead.

[Erik Woodring, Managing Director - Equity Research at Morgan Stanley]

You so much for taking my questions. Enrique, maybe just to start, can you maybe add a little bit more context around your expectations for the PC market in the second half of the year? What is causing the guide down? Is it large enterprises weaker? Is it small enterprise weaker?

[Erik Woodring, Managing Director - Equity Research at Morgan Stanley]

Excuse me, SMB that's weaker, international markets weaker? You've talked about raising prices. So I I just love a little bit of context, a little more context on on kind of PCs in the second half of the year, including any channel inventory comments. And and then, you know, big picture, does does that just does this really mean that kind of Windows 11 refresher is really not a catalyst that we need to think about, if we're growing low single digits during during the the the refresh, during the refresh period? Just a little bit more context would be helpful.

[Erik Woodring, Managing Director - Equity Research at Morgan Stanley]

And then I have a quick follow-up. Thanks.

[Enrique Lores, CEO, President & Director at HP]

Sure. Thank you, Eric. So let me try to answer all the questions you have in your question. First of all, in Q2 and in the first half, we have seen strong demand on the PC side, especially in commercial, as reflected in our results. When we think about the second half, though, we thought it was important to be more prudent in the estimation that we have for the market, given a few of the trends that we see.

[Enrique Lores, CEO, President & Director at HP]

First of all, we are today in a very different economic situation from where we were a few months ago in terms of both consumer and business confidence. Second, we have seen announcements across the industry for price increases in the second half, and we think the combination of both will potentially have an impact in the demand that we see. We are not integrating any effect from channel inventory. All of them are under control, are under good and in a healthy position. We think that the impact will be both for consumer and commercial.

[Enrique Lores, CEO, President & Director at HP]

And again, it's more a matter of prudency as we look at the second half more than we saw any trends in Q2 that we thought we were going to be impacting the overall market size in the second half. Our plan and our goal is to grow share in that market. And of course, if the market is bigger than what we are expecting today, this should be reflected in our results.

[Karen Parkhill, Chief Financial Officer at HP]

And I would just add, Eric, that Win eleven does remain a catalyst for the back half. And and, you know, as if if demand comes in stronger than our moderated guide, that would that will be reflected in our results.

[Erik Woodring, Managing Director - Equity Research at Morgan Stanley]

Okay. Alright. I I appreciate all of that color, guys. Thank you so much for that. And and then maybe a follow-up.

[Erik Woodring, Managing Director - Equity Research at Morgan Stanley]

You know, Enrique, I I would just love if you could give a little bit more kind of high level color for your growth businesses. I think it would help us all better understand kind of two key metrics there. First, just when you add up all of the growth businesses that you allude to in your presentation, how big are they? What percentage of revenue or personal systems or print? Any color that you could share on the size there.

[Erik Woodring, Managing Director - Equity Research at Morgan Stanley]

And then how fast are they growing? I appreciate the commentary on sequential growth, but I assume many of these businesses have different seasonality. So just how big are these businesses? How fast are they growing year over year? And how should we think about growth of these businesses, say, over the next one to three years?

[Erik Woodring, Managing Director - Equity Research at Morgan Stanley]

Would just love to get better context on that. Thanks so much.

[Enrique Lores, CEO, President & Director at HP]

Thanks, Eric. So we haven't disclosed the overall size of the businesses. Let me tell you the two key metrics we have shared before that continue to be true is they are growing faster than the core businesses and the gross margin is also higher than the gross margin of the core businesses. So these two key factors continue to be true. Within growth businesses, we include businesses like AIPCs, where we are seeing very solid growth not only quarter on quarter, but year on year.

[Enrique Lores, CEO, President & Director at HP]

We said that we our goal is for AIPCs to represent more than 25% of the PC business by the end of the year and we are on track to meet that goal. Within growth businesses, we have also our Workforce Solutions business on services and consumer services. Both of them have very solid growth in the quarter. Within growth businesses, we have workstations that had a very solid growth performance during the quarter, Industrial Print. So overall, they performed well.

[Enrique Lores, CEO, President & Director at HP]

They perform as we were expecting, and they will they are a significant part of why we continue to see the second graph stronger than the first half because they will continue to drive growth for the company.

[Erik Woodring, Managing Director - Equity Research at Morgan Stanley]

Got it. Thanks so much.

[Enrique Lores, CEO, President & Director at HP]

Thanks, Eric.

[Operator]

Our next question comes from the line of Michael Ng with Goldman Sachs. Please go ahead.

[Michael Ng, Managing Director - Global Investment Research at Goldman Sachs]

Hi, good afternoon. Thank you for the question. I have just two both on Personal Systems. First, just on Personal Systems margins, it's encouraging to hear that you'll return to the long term range next quarter. I was just wondering if you'll you're assuming that you'll be in that 5% to 7% range for the full year as well.

[Michael Ng, Managing Director - Global Investment Research at Goldman Sachs]

And what are some of the key swing factors that you're watching for? And then secondly, I was just wondering if you could comment on whether you saw any personal systems demand pull in in this past quarter ahead of any prospective tariffs and the current outlook there? Thank you.

[Karen Parkhill, Chief Financial Officer at HP]

Yeah. Thanks, Michael, for the question. In terms of PS margins, yes, we do expect for margins to be in the 5% to 7% range for the full year. You know, given the impact in q two for the full year, it's likely to be in the lower half of that range, but with good sequential improvement. And

[Enrique Lores, CEO, President & Director at HP]

And in terms of pulling, we saw some pulling of in the business days into q two, but at the overall level, fairly small. Our estimation, having looked at shipment data, sellout data is at less than one point of growth was driven by pulling. It's a relatively small number overall. Of course, if we look at North America sales, it would be bigger because it will represent a bigger percentage. But again, overall, at the company level, we're less than 1%.

[Enrique Lores, CEO, President & Director at HP]

And this is the case for PCs. We didn't see any pull in for print.

[Michael Ng, Managing Director - Global Investment Research at Goldman Sachs]

Thank you, Enrique. Thank you, Karen.

[Operator]

Our next question comes from Assia Merchant with Citigroup. Please go ahead.

[Asiya Merchant, Technology Equity Research at Citigroup Global Markets Inc.]

Great. Thank you very much. Couple of ones.

[Asiya Merchant, Technology Equity Research at Citigroup Global Markets Inc.]

One on just AI PCs.

[Asiya Merchant, Technology Equity Research at Citigroup Global Markets Inc.]

I know you're still pretty bullish on AI PCs. But if you can just, you know, help us understand what are some of the killer applications that you hear from your end customers on this mix shift towards AIPCs? And then within your expectations for PS systems growth, how should we think about the impact of pricing and mix shift towards this AIPCs within your overall growth expectations for that segment? Then I have quick follow-up. Thank you.

[Enrique Lores, CEO, President & Director at HP]

Thank you. So overall, as I said before, we are very pleased with the progress that we see in AITC. Our goal is that there will be more than 25% of the mix of PCs by the end of the year, and this continues to be the case. In terms of key applications, what we have seen is a large number of software companies introducing solutions that utilize the capabilities of AITC. We had more than 100 ISVs supporting that now.

[Enrique Lores, CEO, President & Director at HP]

And this number is only growing. And this is why we think that the penetration is going to continue to grow, because if you are in the commercial space and you buy a PC today, you want to be able to take advantage of those capabilities as software will be available. This is the key message we make to customers. And as you can see from the progress we are making is resonating. In terms of the impact it will have, you're correct, it will have an impact on average selling price.

[Enrique Lores, CEO, President & Director at HP]

Our goal that we have shared before is that they will represent around 50% of the total shipments of PCs three years after introductions or about two years from now. We are on track to make that number. On average in average at the average, they are between 1020% higher price than regular PCs, but this, of course, will have an impact on the total value. Something relevant to highlight this quarter is that we introduced AI PCs for the mainstream. This was one of the major innovation announcements we made in Q2 that is going to continue to help to drive adoption and to drive growth in this category.

[Asiya Merchant, Technology Equity Research at Citigroup Global Markets Inc.]

Okay. And then if I may thank you

[Asiya Merchant, Technology Equity Research at Citigroup Global Markets Inc.]

for that. If I may on just free cash flow, I understand PCs are a negative cash conversion cycle and hence affecting. But just if you can help us understand you know, the free cash flow margins ticking down a little bit this in terms of your guide that would help a lot. And what are the drivers for that? Thank you.

[Karen Parkhill, Chief Financial Officer at HP]

Yeah. No. Thanks for the question. You know, our free cash flow guide that we revised does follow earnings. And so in line with that earnings guide, we did reduce our free cash flow expectations for the year.

[Karen Parkhill, Chief Financial Officer at HP]

But it's mainly driven by the reduction that we that we saw in earnings, which is really driven by the operating margin impact that we had this quarter. You know, that along with lower than expected working capital improvement is what, you know, what caused us to guide down. We still do expect working capital improvement, but just a little lower than we had anticipated given the fact that we're focused on doing everything we can to offset these trade related costs. I would say it's important to note though that these working capital moves are temporary and they are purposeful actions really as we mitigate the fluidity of the situation.

[Enrique Lores, CEO, President & Director at HP]

And let me maybe provide some color on the working capital side. But we have said in the prepared remarks, we have diversified our supply chain. We have built factories in different places. And to operate those factories now, we need more working capital than we did in the past. Over time, we will optimize and we will make them more efficient.

[Enrique Lores, CEO, President & Director at HP]

And this is why Karen was saying this will be temporary, but we see a needed increase now as the supply chain has become more diverse.

[Operator]

Thank you. Our next question comes from Wamsi Mohan with Bank of America. Please go ahead.

[Wamsi Mohan, Senior Equity Research Analyst at Bank of America Merrill Lynch]

Yes, thank you. I was wondering if you could share a little more color on some of the mitigation impacts that you're putting in place. How much of this tariff impact do you expect to offset from pricing? So maybe some thoughts around what those price increases could look like and which areas of the market would you be targeting versus cost actions versus potentially moving supply chain? Any quantification there would be helpful.

[Wamsi Mohan, Senior Equity Research Analyst at Bank of America Merrill Lynch]

And I have a follow-up.

[Enrique Lores, CEO, President & Director at HP]

Let me provide more color on that and maybe Karen also wants to complement. So we have taken a lot of actions during the quarter to mitigate the change of the trade environment. Let me start by we accelerated the shift of factories out from China into Southeast Asia, into Mexico, to a certain extent in The U. S. To mitigate the impact of the change.

[Enrique Lores, CEO, President & Director at HP]

A quarter ago, we shared that our goal was to have less than 10% of the products in North America being shipped from China by September. We have accelerated that and we share that now almost no products will be coming from China sold in The U. S. By June. It's a very significant acceleration of the plan that we have.

[Enrique Lores, CEO, President & Director at HP]

We have also changed our logistics network. And for example, we have removed The U. S. As a distribution hub for products that will be going to Canada or to Latin America, will avoid them having we will avoid us having to pay tariffs. We have also taken additional cost actions as Kerry mentioned in the call.

[Enrique Lores, CEO, President & Director at HP]

And also in a very targeted way, we have also taken price actions across the full portfolio both in Personal Systems and Print to reflect the cost that we have seen. This, we have seen the market and the rest of the competitors taking similar actions across the two industries. So we see this as an industry change that will being put in place at the end of q two and now in q three.

[Karen Parkhill, Chief Financial Officer at HP]

And I would just add that we we're not gonna quantify, you know, what comes from price versus, you know, supply chain moves versus other cost actions. But on our future ready program, we did talk about driving an additional hundred million more in savings. And and those are really higher we targeted higher goals for many of the savings opportunities that we're already working on. That included the consolidation of some of our teams under our new TIO organization, also driving more simplified management layers and locations, and reduction in IT applications throughout. And as a result, you know, these actions are now yielding more upside than we initially anticipated and will be realized sooner than planned.

[Karen Parkhill, Chief Financial Officer at HP]

And then lastly, I would just note as we said before that by the time we exit this year in q four, we expect to fully mitigate the cost of these current tariffs.

[Wamsi Mohan, Senior Equity Research Analyst at Bank of America Merrill Lynch]

Okay. Thanks for that color. And as my follow-up, you are actively moving the supply chain away from China, but you also noted like areas like Vietnam, Thailand, Mexico, Philippines. What gives you confidence that your moves given sort of we're still don't know where reciprocal tariffs might end up, that these moves are going to be optimal? What are some of the things that you're thinking through?

[Wamsi Mohan, Senior Equity Research Analyst at Bank of America Merrill Lynch]

And how quickly would you be able to shift production between these areas as you think about what might happen potentially with reciprocal tariffs? Thank you.

[Enrique Lores, CEO, President & Director at HP]

Yes. I think you're right. We are in a fairly fluid environment. So I think I don't want to speculate on what could happen and what would change it we will do. I think what you have seen is we have reacted very fast to the changes that we saw in April.

[Enrique Lores, CEO, President & Director at HP]

We have been able to rebalance supply chain and accelerate some of the plans that we had. We will be fully compensating for that in about two quarters by Q4, as Kieran just said, and we will respond in a similar way to whatever changes happen going forward. We will look for the opportunities. We will optimize the supply chain, and we will respond swiftly to those changes.

[Wamsi Mohan, Senior Equity Research Analyst at Bank of America Merrill Lynch]

Thank you very much.

[Operator]

Our next question is from Samik Chatterjee with JPMorgan. Please go ahead.

[Samik Chatterjee, Managing Director at JP Morgan]

Question. And maybe if I can start off with the print margins in the quarter, again, very solid margins. Maybe if you can just help us with sort of the driver of the margin outperformance you had there, how much of it that is maybe some business drivers versus the future ready cost actions that you're taking? And particularly in relative to the guidance you have for 3Q, you talked about above seasonal revenue growth as well, but you're moderating the margin expectations. So is there a certain one off driver there that we should think of?

[Samik Chatterjee, Managing Director at JP Morgan]

Or is that more just in terms of business mix to sort of really play out in the quarter? And then I have a follow-up. Thank you.

[Karen Parkhill, Chief Financial Officer at HP]

Yeah. Thanks, Samik, for the

Participants

Executives

• Orit Keinan-Nahon, Global Head-Investor Relations
• Enrique Lores, CEO, President & Director
• Karen Parkhill, Chief Financial Officer

Analysts

• Erik Woodring, Managing Director - Equity Research at Morgan Stanley
• Michael Ng, Managing Director - Global Investment Research at Goldman Sachs
• Asiya Merchant, Technology Equity Research at Citigroup Global Markets Inc.
• Wamsi Mohan, Senior Equity Research Analyst at Bank of America Merrill Lynch
• Samik Chatterjee, Managing Director at JP Morgan