The paragraph introduces the Second Quarter 2025 Earnings Conference Call for HP Inc. Tina, the conference moderator, notes the call will be listen-only until a Q&A session, and it's being recorded for replay. Orit Keinan-Nahon, Head of Investor Relations, introduces the call, noting the participation of Enrique Lores, HP's President and CEO, and Karen Parkhill, HP's CFO. The call is webcast with a replay available later. The presentation includes forward-looking statements with disclaimers about risks and uncertainties, and HP does not commit to updating these statements. Financial information is based on current estimates and may differ from future SEC filings.

In the webcast, year-over-year comparisons are used unless otherwise noted, with HP channel inventory referencing Tier 1, and market share based on calendar quarter information. Non-GAAP financial data includes reconciliations to GAAP information, detailed in accompanying tables and slides. Enrique Lores reports solid revenue growth driven by commercial personal systems, despite tariff costs impacting non-GAAP operating profit. Q2 results show 5% revenue growth in constant currency, particularly in commercial and high-value categories. However, external challenges like trade policies and tariffs affected non-GAAP operating profit by about 100 basis points, equating to a $0.12 impact on non-GAAP earnings per share.

The paragraph discusses the company's response to tariff-related impacts by adjusting costs, pricing, and diversifying its manufacturing footprint outside China, now focusing on locations such as Vietnam, Thailand, India, Mexico, and the US. By June, nearly all North American products are expected to be produced outside China. In Personal Systems, the company experienced an 8% revenue growth in constant currency, driven by commercial PC sales and strong market performance in North America and Asia, particularly in premium, workstations, AIPCs, and gaming sectors. They also saw growth in services across various sectors, although operating margins were impacted by tariffs. The company anticipates offsetting these costs soon. In the print division, a 3% revenue decline met expectations, with growth in Europe counterbalancing weak demand in North America and China.

In the article paragraph, HP reports growth in its home unit sales, driven by strong performance in big tanks and increased market share in developed areas, especially with A4 and A3 office value shares. The company sees growth in consumer subscriptions, workforce solutions, and industrial traffic, supported by new product launches at Druva. HP focuses on execution, customer support, and strategic long-term decisions. The company highlights significant innovation strides, such as unveiling over 80 new products and services at the Amplify Conference. A notable achievement is the global rollout of the HP workforce experience platform, which uses AI to enhance productivity and workplace efficiency. Additionally, HP introduced a comprehensive AI PC portfolio, including redesigned HP EliteBook and EliteDesk, to boost work efficiency and data security.

The paragraph highlights HP's collaboration with NVIDIA to launch the HP ZGX AI station, a high-performance workstation designed for data scientists and AI developers to boost productivity and security. HP is also pioneering security in printing with new devices that protect against quantum computer attacks and has won awards for its industrial printing innovations. Their recent advancements include laser technology that simplifies production, the Printhub software for efficient print shop management, and a collaboration with Cuderia Ferrari to develop a lighter and thinner car prep. HP has made strategic adjustments in response to tariff-related challenges by rebalancing manufacturing and logistics, shifting sourcing, and introducing new product configurations. To address cost pressures, they've also implemented price increases, all of which enhance operational resilience and financial discipline.

The company anticipates fiscal 2025 will be influenced by various uncertain factors but plans to respond quickly to changes, as seen in Q2. They expect moderate growth in the PC market and a slight decline in the print market for 2025. The company is implementing an accelerated plan, aiming to achieve over $2 billion in annual savings by the end of fiscal 2025, to offset macro and geopolitical uncertainties while investing strategically. They are committed to sustainable growth, focusing on AI to enhance work efficiency. The paragraph concludes with Karen Parkhill acknowledging solid growth in their Personal Systems commercial business.

The company executed its strategy by expanding in high-value categories, driving growth, and managing costs while continuing to invest strategically. Despite these efforts, non-GAAP operating profit did not meet expectations due to unanticipated tariff increases. The full impact of actions to mitigate these tariff costs will take time to materialize. Although net revenue rose by 3% nominally and 5% in constant currency across all regions, gross margin decreased due to higher tariff and commodity costs. Operating expenses were reduced to help offset these costs, but the operating margin was still affected, decreasing by roughly 100 basis points due to tariff impacts, particularly in personal systems.

The company reported consistent non-GAAP net operating income and expenses year-over-year, offset by currency losses and reduced short-term borrowing costs. Their non-GAAP diluted net earnings per share stood at $0.71, impacted by tariffs. In the Personal Systems segment, revenue grew 7% nominally and 8% in constant currency, driven by commercial volume and higher average selling prices (ASPs), despite minimal demand shifts. The company implemented pricing strategies to address increased tariff and component costs, focusing on premium categories, with strong performance in growth areas like AIPCs, advanced compute, and workforce solutions. Commercial unit growth was 11%, with a 9% rise in revenue due to market momentum and refresh activities, although currency impacts tempered this growth. Consumer revenues increased by 2% through profitable mix changes, particularly in gaming. However, higher commodity and tariff costs lowered the operating margin to 4.5%, below the initial quarterly guide, although excluding tariff costs, the margin would align with the 5% to 7% guidance. Print segment results met expectations.

The paragraph outlines the company's strategic focus on profitable unit growth and market share expansion in high-value categories, which led to increased revenue and subscriber growth in specific sectors despite a decline in print revenue and supplies. The company achieved improved operating margins due to cost discipline and pricing strategies, alongside grant funding benefits. It continues to pursue an efficiency plan aimed at achieving $2 billion in savings by fiscal year 2025, despite $1.2 billion in restructuring charges. These savings are intended to mitigate external uncertainties and support investments in growth and AI innovation for sustainable long-term success. Finally, the paragraph transitions to discuss cash flow and capital allocation.

In the quarter, the company experienced a $38 million cash flow from operations but had slightly negative free cash flow due to payments for inventory related to tariff mitigation, affecting their cash conversion cycle. They returned $400 million to shareholders and undertook debt refinancing, resulting in temporary increased leverage. Consequently, they limited share repurchases to offset stock compensation dilution. Looking forward, the company plans to adjust its second-half guidance due to evolving global trade policies, economic trends, and customer demand impacts. They've considered current tariffs and mitigation strategies, including supply chain flexibility and cost reductions, aiming to fully offset these costs by Q4. They foresee low single-digit growth in the PC market for the year, driven by commercial catalysts like the Windows 11 refresh and AI PC adoption, and expect improved Personal Systems margins in Q3 and Q4.

The article outlines financial expectations, anticipating a slight decline in the print market for the year, with a sharper decline in the second half. They aim to maintain operating margins at the upper end of their 16%-19% target range. Corporate expenses will slightly increase, nearing $1.1 billion, due to integrating a new acquisition. FY 2025 non-GAAP EPS is expected between $3.00-$3.30, while GAAP EPS will range from $2.32-$2.62. For Q3, revenue in personal systems is expected to grow high single digits, with margins improving to the lower half of the 5%-7% range. Print revenue growth will exceed typical patterns, aided by strategic hardware placements and pricing efforts. Q3 non-GAAP EPS is projected to be between $0.68-$0.80, and GAAP EPS between $0.57-$0.69. Free cash flow for FY 2025 is anticipated to be $2.6-$3 billion, with the cash conversion cycle affected by actions addressing tariff fluctuations.

The paragraph discusses a company's strategy in response to changing market dynamics and tariffs. They expect the impact on working capital and tariffs costs to be temporary and aim to mitigate these by Q4. Despite expecting their leverage ratio to exceed the target range in Q3, they are committed to returning approximately 100% of free cash flow to shareholders if leverage stays under two times and no better investments arise. They believe their actions align with long-term profitable growth, and the paragraph concludes by transitioning to a Q&A session. The first question by Erik Woodring from Morgan Stanley inquires about the company's expectations for the PC market in the second half of the year, seeking clarification on areas of potential weakness.

In the paragraph, Enrique Lores discusses the state of the PC market for the second half of the year. Despite strong demand in the first half, especially in the commercial sector, the company is cautiously optimistic about the second half due to various economic factors and anticipated price increases. Channel inventories are healthy, and while Windows 11 is seen as a catalyst, the company is exercising prudency in its market estimates. Their aim is to increase market share, and if demand exceeds expectations, it will be beneficial to the company's results. Karen Parkhill confirms that Windows 11 remains a catalyst that could impact results positively if demand is stronger than anticipated.

In the paragraph, Erik requests more detailed information about the size and growth of Enrique's company's growth businesses, asking for specific metrics such as their percentage of total revenue and growth rates. Enrique responds that while the overall size hasn't been disclosed, these growth businesses are expanding more rapidly and have higher gross margins than core businesses. He highlights the strong performance of divisions such as AIPC, workforce solution business services, consumer services, workstations, and Industrial Print. He notes they are on track for AIPC to account for over 25% of the PC business by the year's end and emphasizes their consistent quarterly and yearly growth.

In the dialogue, Erik Woodring thanks Enrique for previous statements, and Michael Ng from Goldman Sachs asks questions about personal systems. He inquires about the expected margin range for personal systems, which Karen Parkhill confirms will be in the 5% to 7% range for the full year, albeit in the lower half due to Q2 impacts. She also notes a slight pull-in of demand in the PC space into Q2, contributing to less than 1% of growth, with no similar trend observed in the print segment. The conversation then moves to the next questioner, Asiya Merchant from Citigroup.

The paragraph discusses the progress and expectations for AI PCs, highlighting their increasing market share and impact on the PC industry. Enrique Lores expresses optimism about AI PCs, aiming for them to constitute over 25% of the PC mix by the end of the year and 50% within three years of introduction. Key applications driving this shift include numerous software solutions that leverage AI capabilities, appealing to commercial customers. AI PCs are priced 10-20% higher than regular PCs, affecting overall sales value. A significant development this quarter was the introduction of AI PCs for the mainstream market.

In the paragraph, Asiya Merchant asks about the decline in free cash flow margins and its drivers. Karen Parkhill explains that the reduction in free cash flow expectations is primarily due to lower earnings driven by an impact on operating margins and less working capital improvement than expected. Although they still anticipate working capital improvement, it is lower due to managing trade-related costs. The working capital changes are temporary, resulting from purposeful actions to handle trade environment fluidity. Enrique Lores adds that because of the diversified supply chain and new factories, more working capital is currently needed, but this will be optimized over time.

The paragraph discusses measures taken by a company to mitigate the impact of tariffs and changes in the trade environment. Enrique Lores explains that the company has accelerated the relocation of factories from China to Southeast Asia, Mexico, and, to some extent, the US. They aim to stop shipping products from China to the US by June and have restructured their logistics network to avoid US tariffs when shipping to Canada or Latin America. The company has also implemented cost-cutting and price adjustments across its product portfolio, similar to industry trends. Karen Parkhill notes that they will not specify the contributions of pricing, supply chain adjustments, or other cost actions to these changes.

The paragraph discusses a company's efforts to achieve $100 million in additional savings by consolidating teams, simplifying management, and reducing IT applications. As a result, they are on track to realize more benefits sooner than expected. They also aim to offset current tariff costs by the end of Q4. In response to a fluid trade environment, the company is shifting its supply chain from China to other countries like Vietnam, Thailand, Mexico, and the Philippines. They have quickly adapted to recent changes and plan to continue optimizing their supply chain to respond swiftly to any future changes.

In the paragraph, Samik Chatterjee from JPMorgan asks about the strong print margins in the recent quarter and how much of this performance is due to business factors or cost actions. He also inquires about the moderation in margin expectations for Q3 despite anticipating above-seasonal revenue growth. Karen Parkhill responds by attributing the high margins to rigorous cost discipline, pricing actions to offset trade-related costs, and a favorable impact from a multiyear grant from the Economic Development Board of Singapore. She notes that the grant amount booked in Q2 is higher than what will be seen in future quarters as it is retroactive. Parkhill expresses confidence that print margins will remain within the 16% to 19% range in Q3, driven by expectations of increased hardware placements.

The paragraph discusses expectations for sequential improvement in Q4, driven by a higher supply mix, full benefits from trade-related actions, and cost savings initiatives. It highlights that Q4 is usually their strongest quarter, supported by growth in the PC market, increased consumer demand related to back-to-school and holiday purchases, and new product offerings. Additionally, improvements in the manufacturing supply chain and ongoing cost-saving measures contribute to the positive outlook. They anticipate achieving significant cost savings as part of their Future Ready program and expect PS margins to be in the lower half of the 5% to 7% range in Q3, with sequential improvement in Q4. Pricing also plays a role in this positive forecast.

The paragraph discusses expectations for the company's fiscal Q4, highlighting a significant step-up in earnings. Samik Chatterjee and Amit Daryanani ask questions about this anticipated increase, specifically the transition from a $0.70 earnings run rate to $1. Enrique Lores explains that this growth is driven by both revenue increases and cost reduction initiatives. The demand is expected to strengthen, influenced by seasonality factors like back-to-school and holiday seasons, as well as ongoing demand in the commercial sector spurred by Windows 11, refresh of the installed base, and AI advancements.

The paragraph discusses how pricing actions and supply chain redesign efforts are expected to positively impact margins in Q4. Despite moderating growth expectations for the PS business, they anticipate year-over-year growth in the second half. Karen Parkhill emphasizes their confidence stems from current actions expected to gain traction in Q4. Amit Daryanani inquires about a $0.45 fiscal 2025 EPS impact, questioning how much is due to trade tariffs versus demand moderation. Karen Parkhill attributes a 100 basis point margin impact and $0.12 EPS loss to tariff issues that couldn't be mitigated and states that the guidance reduction is due to managing growth expectations. Enrique Lores adds that the new trade environment affects demand. David Vogt mentions relocating manufacturing to avoid tariffs.

In the article, Enrique Lores, discussing future financial expectations, mentions that despite expecting higher working capital, the company anticipates finishing the year within its previously predicted range, extending into fiscal year 2026 and beyond. They believe they can manage tariff-related cost impacts within a few quarters. Tim Long from Barclays poses questions about price elasticity in the PC market, suggesting potential pressures from tariffs, and queries about the competitive landscape in print businesses and currency impacts. Lores finds current elasticity hard to compare with past cycles but feels their conservative market estimation reflects expected changes. He notes stable pricing in the print business without significant improvements.

The paragraph is part of a discussion during a Q&A session, focusing on the impact of PC demand changes and customer preferences on a company's financial performance. Tim Long thanks the operator, and Alek Valero from Loop Capital asks about the effect of PC pull-ins on the company's second half of the year. Enrique Lores responds that the impact is minimal at the company level, though slightly more noticeable in the U.S. due to market size. He mentions that this has been accounted for in their market estimates for the second half. Valero also inquires about whether customers are purchasing PCs with advanced configurations for AI purposes. Lores confirms there is notable growth in the advanced PC category, with customers appreciating the new functionalities and performance, improving the product mix. He concludes by expressing confidence in their future of work strategy for growth.

The paragraph conveys the speaker's confidence in the team's ability to efficiently respond and adapt to various environments to sustain shareholder value. It concludes with a note of gratitude to the participants and a forward-looking statement about future discussions. The operator then announces the end of the conference call.

This summary was generated with AI and may contain some inaccuracies.