HP Expects Revenue, Profit Hit From Halt in Shipments to Russia

HP suspended shipments to Russia “in compliance” with the Biden administration’s sanctions over the Ukraine invasion, said CEO Enrique Lores on an earnings call Monday for fiscal Q1 ended Jan. 31. “The difficult situation in Ukraine is the latest in a series of global challenges we have faced,” he said.

The company has “an experienced cross-functional team in place” on the ground in Ukraine that’s “focused on business continuity,” said Lores. “The environment is very fluid and we are preparing for a range of scenarios.” The well-being of HP’s “people, their families and our customers and partners is our top concern,” he said.

HP is doing its best to gauge the financial impact of the “unfolding situation in Ukraine, including the current sanctions on Russia,” said Chief Financial Officer Marie Myers. “We are factoring in our best assumptions at this time, recognizing that the situation remains fluid and highly uncertain.”

For fiscal Q2 ending late April, “we expect a negative impact to our top line and bottom line as a result of the sanctions that have been imposed,” said Myers. The company has “factored in” a profit hit of between 2 and 3 cents a share to its Q2 guidance, she said. Q2 revenue results will be “incrementally constrained by a volatile supply chain and logistics environment and also the dynamic macro environment, including the Russia situation, all negatively impacting our top line,” she said. “For the second half of 2022, the broad ramifications of the situation in Europe and beyond are uncertain, and we are monitoring this closely.”

HP continues to navigate “a complex environment of industrywide component shortages and logistical constraints,” said Lores. “Despite steady progress against our plans to strengthen our operational processes, it will take time before the gap between supply and demand fully dissipates. We are securing more parts for products, sourcing from alternate part suppliers and allocating available parts to optimize our product mix.”

In HP’s consumer business, “we continue to experience demand shift into high-value categories like premium and gaming,” said Lores. “We also reduced our backlog quarter over quarter and our supply chain actions are generating positive results.” Softer demand for low-end consumer PCs helped drive the reduction of backlog, “but we are still operating with significantly higher backlog than what we normally do,” he said. “So backlog remains elevated, and we expect it to continue to be elevated.”

HP’s “market projection” for calendar 2022 is that the industry “will be around $200 billion bigger than what it was before” the COVID-19 the pandemic, he said. “We don’t expect to see the level of growth that we saw in the past, but we think that the market is going to stay at the level where it is today, which is, again, significantly higher than it was before the pandemic.”