HP (NYSE:HPQ) Q1 2026 Earnings call February 24, 2026 05:00 PM ET Speaker11Good day, everyone, and welcome to the first quarter 2026 HP Inc. Earnings Conference Call. My name is Regina, and I will be your conference moderator for today's call. At this time, all participants will be in listen-only mode. We will be facilitating a question and answer session toward the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing the star key followed by z ...

Group 1: Company Developments - Lenovo Holdings completed an increase in its stake in Lenovo Group, acquiring approximately 115 million shares for about HKD 1.125 billion, raising its total ownership to 32.34% [1] - Lenovo Group launched its "Smarter AI for all" strategy at the CES 2026, introducing AI servers and the Lenovo Qira personal intelligent agent, with AI business revenue accounting for 30% [1] - Lenovo Group reported a 15% year-on-year revenue growth and a 25% increase in net profit for the second quarter of the 2025/26 fiscal year, achieving record highs [1] Group 2: Industry Environment - The Hong Kong Securities and Futures Commission has mandated a comprehensive review of the listing application process, affecting 70% of active projects, which may impose stricter scrutiny on Lenovo Holdings for any future capital operations [1] - Rising upstream chip costs and US-China trade tensions may pressure Lenovo Group's profits, necessitating attention to Lenovo Holdings' risk management strategies regarding its subsidiaries [2] - Lenovo Holdings has not announced any special dividend or buyback plans recently, but the upcoming annual report may reveal new capital allocation strategies [2]

Summary of Lenovo's Dec-Q Earnings Call Company Overview - **Company**: Lenovo (Ticker: 0992.HK) - **Industry**: Technology, specifically focusing on PCs and Servers Key Financial Highlights - **Revenue Growth**: Revenues increased by 18% year-over-year (YoY) to **US$22 billion**, exceeding estimates by 8% and 7% compared to internal and Bloomberg consensus respectively [1] - **Gross Margin (GM)**: Sustained at **15.1%**, slightly down from **15.4%** in the previous quarter, aligning closely with consensus estimates [1][2] - **Operating Income**: Adjusted operating income rose by 28% YoY to **US$903 million**, significantly above estimates by 39% [1] - **Net Income**: Adjusted net income increased by 35% YoY to **US$589 million**, surpassing estimates by 50% [1] Segment Performance Intelligent Devices Group (IDG) - **Revenue Contribution**: Accounted for 71% of total revenues, with a 4% quarter-over-quarter (QoQ) increase [7] - **Operating Profit Margin (OPM)**: Maintained at **7.3%** despite rising memory costs [7] - **Market Share**: Achieved a global PC market share of **25.3%**, marking the first time a vendor surpassed a quarter of the market for two consecutive quarters [7] - **Product Mix**: High double-digit YoY revenue growth in AI PCs, with premium PCs contributing to higher average selling prices (ASP) and margins [7] Infrastructure Solutions Group (ISG) - **Revenue Growth**: Revenues increased by 27% QoQ, representing 23% of total revenues [7] - **OPM Improvement**: Enhanced to **-0.2%** from **-0.8%** in the previous quarter [7] - **Drivers of Growth**: Expansion of the Cloud Service Provider (CSP) customer base and transformation in enterprise and SMB sectors [7] - **AI Servers**: Continued strong growth in AI server revenues, driven by models like GB300 [7] Solutions & Services Group (SSG) - **Revenue Contribution**: Made up 12% of total revenues, with a 4% QoQ increase [8] - **OPM**: Sustained at **22.5%** [8] - **Growth Drivers**: Double-digit growth in Support Services and strong performance in Managed Services, particularly in Device as a Service (DaaS) [8] Investment Outlook - **Price Target**: Set at **HK$11.98**, with current price at **HK$9.43**, indicating a potential upside of **27%** [9] - **Market Capitalization**: Approximately **HK$139.8 billion** or **US$17.9 billion** [9] - **Earnings Forecast**: Projected revenue growth from **US$69.1 billion** in FY3Q25 to **US$97.9 billion** by FY3Q28 [9] Additional Insights - **Operational Efficiency**: Adjusted operating expense ratio improved to **11.0%** from **11.7%** in the previous quarter, better than estimates [1] - **Future Strategy**: The company is implementing a restructuring program to streamline its product portfolio and enhance workforce skills to support sustainable profitability [7] This summary encapsulates the key financial metrics, segment performances, and strategic outlook for Lenovo, highlighting its robust growth trajectory and operational efficiencies.

Core Viewpoint - Lenovo Group reported a record revenue of 157.5 billion RMB for Q3 of the fiscal year 2025/26, marking an 18% year-on-year increase, with adjusted net profit growing by 36%, reflecting a high-quality and sustainable growth model [2][3] Financial Performance - The company achieved a record revenue of 157.5 billion RMB, with a profit growth rate double that of revenue growth [2] - Adjusted net profit increased by 36% year-on-year, indicating strong financial health [2] - All business groups within the company experienced double-digit revenue growth, with personal computer sales growth outpacing the market for ten consecutive quarters [3] AI Revenue Growth - AI-related revenue surged by 72% year-on-year, now accounting for 32% of total revenue [3][4] - The growth in AI revenue was driven by significant increases in AI computers, AI smartphones, AI infrastructure, and AI services, showcasing the advantages of Lenovo's hybrid AI strategy [3] Business Strategy - Lenovo's hybrid AI strategy focuses on both "personal intelligence" and "enterprise intelligence" [4] - The company launched Lenovo Qira, a key step in creating a unified AI terminal entry across platforms and devices [4] - Lenovo's enterprise AI initiatives include the release of the Lenovo xIQ technology platform and collaboration with NVIDIA on AI cloud super factory plans [4] Market Position - Lenovo's infrastructure solutions group achieved revenue of 36.7 billion RMB, a year-on-year increase of over 31%, nearing profitability [3] - The solutions and services group reported an 18% year-on-year revenue growth, with an operating profit margin of 22.5%, supporting overall profitability [3]

Core Viewpoint - Barclays downgraded HP Inc. to Underweight from Equal Weight with a price target of $18, indicating a potential downside of approximately -12.66% from the current trading price of $20.61 [1][5]. Company Performance - HPQ's stock is currently trading at $20.61, experiencing a slight decrease of 0.77%, or $0.16, with fluctuations between a low of $20.50 and a high of $21.02 on the day [2][5]. - Over the past year, HPQ's stock has shown significant volatility, with a high of $35.28 and a low of $20.50 [2]. Market Capitalization and Trading Volume - HP Inc.'s market capitalization is approximately $19.26 billion, with a trading volume of 14,110,542 shares on the NYSE [3]. Competitive Landscape - While HPQ faces a downgrade, other tech companies like AMD and Intel have received upgrades, highlighting the competitive nature of the technology sector [4]. - HP Inc. continues to focus on its core products and market strategies to maintain its competitive position in the industry despite the challenges [4][5].

Summary of Lenovo Tech World at CES Company and Industry - **Company**: Lenovo - **Industry**: Consumer Technology, AI, Computing Core Points and Arguments 1. **Lenovo's Vision for AI**: Lenovo aims to create "smarter AI for all," focusing on personal and enterprise AI that enhances human potential and operational efficiency [2][3][4] 2. **Hybrid AI Concept**: Lenovo introduces the concept of hybrid AI, combining personal AI with enterprise AI to create tailored solutions for individuals and organizations [5][49] 3. **AI Evolution**: AI is evolving beyond basic tasks to understanding complex human interactions, learning from individual preferences, and enhancing creativity [3][4] 4. **Partnership with NVIDIA**: Lenovo and NVIDIA have a long-standing partnership, recently launching the Lenovo AI Cloud Giga Factory to accelerate AI model deployment and enhance computing capabilities [34][35] 5. **AI Compute Shift**: The industry is transitioning from classical computing to AI-driven computing, with significant investments in AI-native companies [24][25] 6. **Lenovo Kira**: Lenovo's new personal AI, Kira, is designed to integrate across devices, providing a seamless user experience by learning from user interactions and preferences [63][70] 7. **AI in Wearables**: Lenovo is exploring AI integration in wearables, with potential applications in fashion and personal devices, aiming for billions of units in the market [106][109] 8. **Collaboration with Intel**: Lenovo and Intel are enhancing AI capabilities in PCs, focusing on creating intelligent devices that improve user experience [75][81] 9. **AI PCs and Devices**: Lenovo is launching the next generation of AI PCs, including the Aura Edition, which will feature enhanced AI capabilities and integration with Lenovo Kira [85][90] 10. **AI in Formula 1**: Lenovo's technology is utilized in Formula 1 for data processing and energy efficiency, showcasing its capabilities in high-performance environments [114] Other Important Content 1. **Investment in AI**: $150 billion was invested in AI-native companies last year, indicating a strong market shift towards AI technologies [24] 2. **AI Model Growth**: AI models are growing exponentially, with sizes increasing tenfold annually, necessitating more computing power for training and inferencing [31][33] 3. **Multi-Agent Collaboration**: Future AI systems will leverage multi-agent collaboration to enhance task execution and user experience [58][60] 4. **Privacy and Security**: Lenovo Kira emphasizes user privacy while providing personalized AI experiences, ensuring data security [70] 5. **Market Projections**: AI PCs are expected to capture 80% of the market within three years, with significant growth in AI smartphones as well [90]

Core Insights - HP Inc. has introduced new technologies at CES 2026, focusing on personal fulfillment as a key driver for business growth [1] - The company aims to address the fulfillment deficit in the workforce by providing innovative tools and technology [2] Group 1: Innovations and Product Launches - HP unveiled the HP EliteBoard G1a, the world's smallest and lightest AI PC, designed for mobility and local AI performance [3][4] - The HP EliteBook X G2 Series and HP OmniBook Ultra 14 are the first notebooks to offer up to 85 TOPS NPU for concurrent AI applications [3][4] - The HP OmniBook portfolio has been updated with Snapdragon® X2 and OLED displays, featuring the longest battery life in a 16-inch OLED consumer AI PC notebook [3] - HP integrated Microsoft Copilot into HP Office Print devices, enhancing productivity directly at the printer [4] - The Workforce Experience Platform (WXP) has received new firmware-level recovery capabilities for faster IT issue resolution [4] - HP has unified its gaming brands under HyperX, launching the HyperX OMEN MAX 16, a powerful gaming laptop with advanced cooling technology [4] Group 2: Commitment to Sustainability - Since 2019, HP has utilized over 5 billion pounds of reused, recycled, or renewable materials in its products and packaging, supporting a circular economy [3][8] - The company is focused on driving sustainability and digital workforce development through partnerships and advocacy [8] Group 3: Future of Work Accelerator - The Future of Work Accelerator aims to expand access to technology and skills for disconnected communities, having served 35 nonprofits across 13 countries and reaching 11.3 million people since 2022 [5] - In 2026, the Accelerator will return to the U.S. and will be open to both nonprofits and for-profits, focusing on AI and the Future of Work [6]

Group 1 - Lenovo (Beijing) Co., Ltd. has applied for a patent titled "A Retrieval Method and Device," with publication number CN121210698A, and the application date is October 2025 [1] - The patent abstract reveals a retrieval method that includes obtaining a query statement, extracting target word text features from the query, acquiring local image features matching the target word text features from a feature library, and retrieving target images from an image library based on local image features [1] - Lenovo (Beijing) Co., Ltd. was established in 1992 and is located in Beijing, primarily engaged in the manufacturing of computers, communications, and other electronic devices, with a registered capital of 565 million HKD [1] Group 2 - According to Tianyancha data analysis, Lenovo (Beijing) Co., Ltd. has invested in 107 companies, participated in 5,000 bidding projects, and has 1,751 trademark information entries and 5,000 patent information entries [1] - The company also holds 238 administrative licenses [1]

Core Insights - Lenovo reported 2QFY26 revenue of $20.45 billion, a year-on-year increase of 14.6%, exceeding Bloomberg consensus expectations by 1.7% [1] - Non-HKFRS net profit reached $512 million, up 25.2% year-on-year, surpassing the company's previous guidance midpoint of approximately 19% [1] - The company disclosed that AI-related business revenue accounted for 30% of total revenue, reflecting a year-on-year increase of 13 percentage points [1] Group 1: PC and IDG Performance - IDG (Intelligent Devices Group) revenue grew by 11.8% year-on-year, with an operating profit margin of 60%, demonstrating resilience amid rising storage costs [2] - Lenovo's global PC market share increased by 1.8 percentage points year-on-year to 25.6%, marking a record high and leading the second-place competitor by 5.7 percentage points [2] - Driven by hybrid AI, PC revenue rose by 17% year-on-year, with AI PC penetration increasing by 16 percentage points year-on-year, accounting for 33% of total PC shipments [2] Group 2: ISG and SSG Performance - ISG (Infrastructure Solutions Group) revenue increased by 23.7% year-on-year, driven by demand for cloud infrastructure and enterprise solutions [3] - AI server business recorded high double-digit revenue growth, with strong order reserves [3] - Neptune liquid cooling technology revenue surged by 154% year-on-year, reinforcing the company's leadership in energy-efficient AI infrastructure [3] - SSG (Solutions and Services Group) revenue grew by 18.3% year-on-year, maintaining double-digit growth for the 18th consecutive quarter, with an operating profit margin exceeding 22% [3] Group 3: Future Outlook and Valuation - The company expects to leverage its scale and supply chain advantages to mitigate the impact of rising storage costs, with AI anticipated to drive stable revenue growth in IDG [2] - The target price has been adjusted to HKD 14.0 (previously HKD 16.0), corresponding to a 14.6 times FY2026E PE, while maintaining a "Buy" rating [3]

Financial Data and Key Metrics Changes - Lenovo reported a record revenue of $20.5 billion for the last quarter, representing a year-on-year growth of almost 15% [2][11] - Adjusted net income increased by more than 25% year-on-year to $512 million, with an adjusted net income margin expanding to 2.5% [11][12] - AI-related revenues accounted for 30% of the group's total, marking a 13 percentage point increase year-on-year [2][11] Business Line Data and Key Metrics Changes - Intelligent Devices Group (IDG) revenue grew 12% year-on-year to $15.1 billion, with operating profit climbing 11% to $1.1 billion [15] - Infrastructure Solutions Group (ISG) revenue increased by 24% year-on-year to exceed $4 billion, driven by AI infrastructure demand [8][17] - Solutions and Services Group (SSG) achieved 18% year-on-year revenue growth, marking the 18th consecutive quarter of double-digit expansion [9][19] Market Data and Key Metrics Changes - Global PC market share reached a historic high of 25.6%, with Lenovo maintaining leadership in both consumer and commercial segments [11][15] - The smartphone business achieved record-high concurrent quarter activations, supported by strong end-user demand [11] - All reported geographies delivered double-digit year-on-year revenue growth, reinforcing balanced strength across 180 markets [12] Company Strategy and Development Direction - Lenovo is focusing on AI democratization, with a strategy that includes personal AI and enterprise AI, aiming to capture hybrid AI opportunities [2][3] - The company plans to launch a personal AI super agent at Tech World in January 2026, emphasizing hyper-personalization across multiple devices [4][5] - Lenovo's hybrid AI strategy aims to create enterprise AI twins for customers, enhancing their data processing and insights capabilities [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating uncertainties and capturing substantial AI opportunities despite external challenges [2][3] - The company anticipates continued double-digit growth in both PC and server businesses over the next two quarters [28] - Management highlighted the importance of maintaining competitive costs and supply chain resilience amid rising component prices [26][28] Other Important Information - Lenovo's commitment to sustainability and ESG initiatives was emphasized, with recognition in global rankings for supply chain performance and inclusion efforts [22][23] - The company is optimistic about global trade improvements and plans to elevate its brand through partnerships and major initiatives [23] Q&A Session Summary Question: How big will the memory price impact on margin? - Management believes Lenovo is well-positioned to manage supply shortages and rising component costs due to strong supplier relationships and procurement power [26][28] Question: What is the PC outlook for the next year? - Management is optimistic about maintaining double-digit growth in the PC segment, despite rising storage and memory component prices [30][31] Question: What is the smartphone outlook for 2026? - The smartphone market is expected to grow in single digits, with a focus on premium devices that are less affected by component cost increases [32][33] Question: How does Lenovo capture opportunities in hybrid AI infrastructure? - Lenovo's hybrid AI strategy focuses on agility and flexibility, with a strong emphasis on AI services to accelerate customer AI journeys [36][37] Question: Can Lenovo sustain strong growth and margins in SSG? - Management is confident in the growth of SSG, driven by demand for AI services and a focus on sustainability [39][43] Question: What is Lenovo's strategy for AI servers? - Lenovo aims to capture growth in AI inferencing by enhancing its infrastructure capabilities and focusing on customer needs [52][53]