HP ‘Fully Winding Down’ $1B Russia Operations, Says CEO

HP, like most PC vendors, expects it will continue to have strong commercial PC demand for the rest of calendar 2022, with “some softening of the consumer businesses,” said CEO Enrique Lores on an earnings call Tuesday for fiscal Q2 ended April 30. Revenue in HP’s Personal Systems segment grew 9% to $11.5 billion -- “our highest Q2 revenue ever, reflecting the durability of PC demand,” he said.

The company is bracing for at least two more quarters of supply “constraints,” said Lores. “First is the industry-wide component shortages that we expect will continue through fiscal 2022" ending late October, he said. “Second are the COVID-related disruptions in China, which we expect will primarily impact fiscal Q3" ending late July, he said.

HP suspended shipments to Russia and Belarus “across our portfolio, and paused our marketing and advertising activities” when Russia invaded Ukraine in February, said Lores. “We have decided to stop our Russia activity and have begun the process of fully winding down our operations.” HP had revenue of about $1 billion from Russia in fiscal 2021 ended October, he said. In assessing the financial impact of the Russia-Ukraine war and the recent lockdowns in China, “we are factoring in our best assumptions at this time, recognizing that conditions remain fluid and highly uncertain, with impacts to our top and bottom line results,” said Chief Financial Officer Marie Myers.

“Integration planning” efforts are well underway at HP to complete its $3.3 billion Poly buy by the end of calendar 2022 (see 2203280036), said Lores. “We are working closely with the Poly team to prepare for a smooth transition upon deal close.”

Once the Poly buy is complete, HP expects the transaction “will strengthen our position in hybrid work solutions and accelerate our growth in peripheral and workforce solutions,” said Lores. Since announcing the deal in March, he said, “we have received very positive feedback from reseller partners and commercial customers about the opportunity ahead.”

Revenue in HP’s Q2 was up 3.9% from a year earlier to $16.5 billion but down 3.2% sequentially from Q1. HP’s continued “mix shift” toward commercial and premium PCs, combined with strategic price hikes, “allowed us to more than offset fewer unit shipments in the quarter,” said Lores. “Increased spending on hybrid work solutions is driving strong commercial PC demand,” he said. Revenue in HP’s commercial PC segment grew 18% on double-digit growth in Windows-based notebooks, desktops and workstations, he said.

Though the consumer PC market “has seen some signs of softening demand, it still exceeded pre-pandemic levels,” said Lores. “There are pockets of growth in areas like premium and gaming that we are most focused on, and we are driving continued growth in peripherals, which grew more than 40% this quarter,” he said.

HP’s supply chain actions “continue to have a positive impact,” said Lores, resulting in reduced backlog quarter over quarter. “While the backlog remains elevated, particularly in commercial, we believe the actions we are taking will drive continued improvement,” he said.

Lores can’t overestimate “the strength of the demand on the commercial side” of the PC business, he said in Q&A. “We are seeing this across the board, across all geographies, and this is especially true on high configurations, given the new use models that PCs are going to have.” HP expects the overall PC market “in terms of units to decline slightly” for the year, he said. “This is very similar to what other analysts and other companies have shared.” Commercial will become a bigger share of the mix, and “premium categories within commercial will be bigger,” just as premium consumer and gaming “will become a more relevant part of the market,” he said.