HP(US:HPQ)2023-03-07 03:24Summary of HP Inc. Conference Call Company Overview - Company: HP Inc. (NYSE: HPQ) - Event: Morgan Stanley Technology, Media & Telecom Conference - Date: March 6, 2023 - Participants: Enrique Lores (President and CEO), Eric Woodring (Morgan Stanley Analyst) Key Points Demand Landscape - Consumer Demand: Weak demand continues in the consumer segment, a trend that started mid-last year and persists into 2023 [5] - Enterprise Demand: Notable weakening in enterprise demand due to corporations adopting a more conservative approach to budgeting and hiring [5][8] - Inventory Situation: High inventory levels in the PC industry have been reduced, expected to continue for at least another quarter, impacting unit sales [6] Macro and Micro Environment - Macro Concerns: Corporations are cautious about the economic environment, leading to conservative budget management [8] - Micro Opportunities: Hybrid work is becoming prevalent, presenting medium to long-term growth opportunities for HP as companies invest in home and office equipment [9] PC Market Insights - Market Guidance: HP expects PC market units to decline in the high teens for fiscal 2023, with no recovery anticipated this year due to ongoing uncertainty [10][11] - Channel Inventory: Elevated channel inventory is affecting both consumer and commercial segments, but sell-through to real customers is stronger than sell-in [12] - Second Half Outlook: Anticipation of stronger performance in the second half of the year due to channel inventory correction and seasonal trends [16] Long-term Market Potential - PC Total Addressable Market (TAM): Factors such as demographics, hybrid work, and an increased installed base suggest that the post-COVID PC TAM could be larger than pre-COVID levels [20][21] - Average Selling Prices (ASPs): ASPs are expected to remain higher than pre-COVID levels due to richer configurations and increased demand for better specifications [24][25] Printing Business - Market Resilience: The printing market has shown more stability compared to PCs, with specific segments like graphics continuing to grow [32] - Business Model Transition: HP is shifting from transactional supplies to subscription models (HP Plus, Instant Ink), with 56% of print shipments now in these categories [34][36] - Operating Margins: Print operating margins remain strong, above the long-term guidance of 16% to 18%, driven by changes in business model and cost structure improvements [42][43] Future Ready Initiative - Cost Savings: HP is focusing on simplifying its portfolio, enhancing digital transformation, and improving operational efficiency to drive cost savings [45][46][47] - Investment in Growth: Savings will be reinvested in growth areas, particularly in hybrid systems and solutions/services [48] Free Cash Flow Guidance - Fiscal 2023 Guidance: HP reiterated its free cash flow guidance of $3 billion to $3.5 billion, with expectations for stronger performance in the second half of the year [50] Company Valuation - Undervalued Shares: HP believes its shares are undervalued, with a history of growing revenue, operating profit, and free cash flow [52][54] - Investor-Friendly Approach: HP has a track record of returning 100% of free cash flow to investors and maintaining a healthy leverage ratio [54] Additional Insights - Poly Acquisition: Integration of Poly is progressing well, with positive market reactions and long-term growth potential in video conferencing [27][28] - Hybrid Work Trends: The shift towards hybrid work is expected to drive demand for better communication tools and devices [20][21] This summary encapsulates the key insights and strategic outlook for HP Inc. as discussed during the conference call.