HP’s ‘Scale’ Can Lift Poly From Its Supply-Chain Doldrums: CEO

HP believes its “scale” can help relieve Poly of the supply-chain woes that have hampered recent revenue growth for the supplier of audio and video work-from-anywhere solutions, said CEO Enrique Lores on an investor call Monday summarizing HP’s definitive agreement to buy Poly (the former Plantronics) for $3.3 billion cash. HP Chief Financial Officer Marie Myers said the transaction is expected to close by the end of calendar 2022 and will be financed with cash on hand, plus new debt, without sacrificing HP’s previous commitments to buy back $4 billion in stock during its fiscal year ending late October.

HP’s goal is to generate $500 million in revenue “synergies” within three years by combining with Poly, said Lores. Once Poly is fully integrated into HP’s portfolio, he said, Poly will be capable of generating 15% compound annual revenue growth. The Poly stock soared 53% Monday, closing at $39.95. HP shares fell 3%, closing at $38.73.

By comparison, Poly exited the first nine months of its fiscal year Jan. 1 with revenue of $1.26 billion, a year-over-year increase of less than 1%. “Our backlog tells the story,” said Poly CEO Dave Shull on a Feb. 8 earnings call. “While we're excited to see so much demand growth, we are frustrated because we want to fill our customers orders sooner than we currently can.” Lores and Myers sidestepped analysts’ questions about the size of Poly’s backlog. Shull didn’t participate on the Monday call, though he did contribute a statement praising the combination as giving Poly “an opportunity to dramatically scale.”

HP was hardly a model for navigating supply chain challenges in midsummer when Lores reported the company was rethinking its outsourcing model through original design manufacturers after PC unit growth was flat in its fiscal Q3 ended July 31 (see 2108270003). Archrival Dell, by comparison, shipped a record number of PCs in its fiscal Q2 ended July 30, despite industry supply shortages.

The rise of the hybrid office “creates a once-in-a-generation opportunity to redefine the way work gets done,” said Lores. “Combining HP and Poly creates a leading portfolio of hybrid solutions across large and growing markets.” Poly will help drive the growth and scale of HP’s peripherals and workforce solutions businesses, said Lores. Peripherals are a $110 billion segment opportunity that’s rising by a 9% compound annual growth rate, he said. Workforce is a $120 billion segment opportunity, rising at an 8% CAGR, he said.

Hybrid is “a structural shift in how and where work gets done,” said HP President-Personal Systems Alex Cho. Three-quarters of workers are setting up “more productive home offices as they prepare to permanently work from home at least part of the time,” he said. “As they do, they are prioritizing audio and video quality.”

Companies are also making significant investments “to support these new ways of working,” said Cho. “Many people are choosing employers, based on the technology and flexibility they provide.” Employers are reconfiguring their office spaces with “hybrid collaboration in mind,” he said. Of the more than 90 million “collaboration spaces” in current offices, fewer than 10% have “video capabilities,” he said. “This means they need new technology, which is why the meeting-device industry is projected to triple by 2024.”