Revenue +3% Nominal / +5% Constant Currency on Continued Commercial PC Strength (PS +8% CC), But Tariff Costs Drove ~100bp Hit to Non-GAAP Operating Margin and ~$0.12 EPS Drag; PS Operating Margin 4.5% Below 5-7% Long-Term Range; FY25 Non-GAAP EPS Guide Cut to $3.00-$3.30 (From $3.45-$3.75); Supply Chain Pivot Accelerated — Almost No US-Bound Products From China by June (vs. Prior September Target); $2B+ Future-Ready Savings Target Raised; AIPC + Windows 11 Refresh Remain Catalysts but Print Down 3% CC With Continued Office Softness — Initiating Coverage at Hold

Results vs. Consensus — Q2 FY25

Q2 Scorecard

YoY Comparison

FY25 Guide Update vs. Prior

Quality-of-Print Callout

Segment Performance

Personal Systems ($9.4B revenue / +8% CC YoY / PS operating margin 4.5%)

Personal Systems delivered the strongest underlying operational performance — commercial PC +9% YoY with North America and Asia leading, share gains in premium / workstations / AIPCs / gaming, services growth driven by new wins in healthcare / financial services / retail. AIPC penetration accelerating toward the 25%+ FY25-end target. Demand-side pull-in was minimal at less than 1% of revenue growth.

However, the segment-level financial performance disappointed. PS operating margin 4.5% (below 5-7% long-term range) due to ~100bp tariff drag mainly hitting in April when increased tariffs were announced. Excluding the tariff impact, PS margin would have been "well within" the 5-7% range. Management is committing to PS margin returning to 5-7% range in Q3 via the mitigation actions in flight.

Assessment: The PS top-line strength is structurally bullish — the AIPC + Windows 11 refresh + commercial demand combination is real. However, the margin compression is the binding bear point. We watch Q3 closely — if PS margin recovers to 5%+ as guided, the Hold-to-Outperform path opens. If PS margin remains below 5% in Q3 with continued tariff drag, the Hold-to-Underperform path widens.

Print ($4.0B revenue / -3% CC YoY / Print operating margin above 19% range top)

Print revenue declined -3% CC as expected. Home units +2% on Big Tank strength; office softer in North America; China continued weak. Industrial graphics growing with the new Druva portfolio. Workforce solutions + consumer subscriptions continued momentum. Office revenue declined on hardware softness; supplies down -3% CC on installed-base and usage headwinds offset partially by pricing + share gains in higher-value categories.

Print operating margin came in above the 16-19% target range top — strong margin discipline + grant funding benefit + pricing actions. The above-range margin is structurally bullish for Print's contribution to consolidated profit, but the underlying market decline persists.

Assessment: Print is performing as a structurally declining cash cow with strong margin discipline. The mix shift toward consumer subscriptions + workforce solutions + industrial graphics is the right strategic direction — high-margin recurring revenue gradually offsetting hardware/supplies decline. We don't expect Print to inflect to growth; we do expect Print to continue contributing solid operating profit through FY25 + FY26. The H2 FY25 hardware decline closer to mid-single-digit is a near-term headwind.

FY25 Outlook — Materially Cut

Key Topics & Management Commentary

Overall Management Tone: Disciplined and direct in acknowledging the tariff drag and the guide cut. The framing is operationally confident ("we have planned for today's steady landscape, and if it changes, we will respond swiftly") and explicitly multi-quarter on mitigation timelines. Management is not over-promising on Q3 EPS recovery — the $0.68-$0.80 Q3 guide accommodates the multi-quarter timeline for full tariff mitigation while still implying meaningful sequential improvement. The tone on AIPC + Windows 11 refresh remains positive; the tone on the broader PC market is more cautious than three months ago.

1. The Tariff-Driven Miss — $0.12 Unmitigated EPS Impact

"Due to additional tariff costs that could not be fully mitigated in the quarter, our non-GAAP operating profit fell short of expectations. … the rapidly changing external landscape, including shifting trade policies and additional tariffs, had a net impact of approximately 100 basis points on our non-GAAP operating profit, mainly in April and primarily impacting personal systems. This resulted in a roughly $0.12 impact on our non-GAAP earnings per share."
— Enrique Lores, CEO

The April tariff increases were materially higher than HP had embedded in its Q2 guidance. The net 100bp operating margin impact (after mitigation actions taken in quarter) translates to ~$0.12 EPS drag — the difference between the actual $0.71 and approximately what would have been delivered absent the April escalation. The CFO is explicit that mitigation actions take "a few months lead time depending on the scope," which is why Q2 saw the unmitigated impact.

The mitigation framework: (a) accelerated supply-chain shift out of China, (b) cost reduction actions, (c) pricing increases (selective). Management commits to full mitigation by Q4.

Assessment: The tariff drag is real but the mitigation framework is operationally credible. HP has a multi-decade track record of supply-chain management — the acceleration from "less than 10% China-built by September" to "almost all US-bound built outside China by June" is exceptional execution under stress. The question is whether the mitigation arrives before the underlying tariff cost structure shifts again. We model FY25 EPS at the lower end of $3.00-$3.30 ($3.05-$3.10) and FY26 EPS recovery to $3.35-$3.55 assuming tariff stability and continued execution.

2. Supply-Chain Diversification — From "<10% China by September" to "Almost None by June"

"We have expanded our manufacturing footprint for both PCs and printers to different locations, and we recently increased our production coming from Vietnam, Thailand, India, Mexico, and the US. By the end of June, we now expect literally all of our products sold in North America will be built outside of China, significantly accelerating our previous plan."
— Enrique Lores, CEO

The supply-chain acceleration is the most impressive operational achievement of the quarter. A quarter ago, HP's stated target was less than 10% of US-bound products built in China by September; now management commits to virtually zero by end of June — a 3-month acceleration of the timeline. The geographic distribution shift to Vietnam, Thailand, India, Mexico, and US manufacturing reflects HP's existing relationships and capability across these footprints.

The trade-off: temporarily higher working capital requirements as multiple smaller-scale plants operate at lower efficiency than the consolidated China footprint. Management is explicit that working capital will normalize over time as the diversified network achieves operational scale.

Assessment: The supply-chain pivot is structurally bullish for HP's competitive positioning vs. PC peers with thinner manufacturing footprints. Companies with deeper diversification (Apple, Dell to some extent) are better positioned through ongoing tariff volatility. We view HP's supply-chain agility as a meaningful structural advantage that may not be fully appreciated in the current Hold-to-Underperform consensus narrative.

3. AIPC Penetration — On Track for 25%+ by FY25-End

"Our goal is for AIPC to represent more than 25% of the PC business by the end of the year, and we are on track to meet that goal. … In terms of key applications, what we have seen is a large number of software companies introducing solutions that utilize the capabilities of AI PCs. We have more than 100 ISVs reporting that now, and this number is only growing."
— Enrique Lores, CEO

AIPC penetration target of 25%+ by FY25-end is on track. The ISV ecosystem expansion to 100+ software solutions taking advantage of AIPC NPU capabilities supports continued demand growth. AIPC pricing is 10-20% premium to standard PCs, providing both volume and ASP tailwinds.

Long-term target: AIPCs at ~50% of total PC shipments by ~2027 (three years post-introduction). If achieved, this represents a meaningful structural mix shift toward higher-ASP, higher-margin products.

Assessment: AIPC is the most attractive secular growth lever for HP. The combination of (a) hardware refresh tailwind via Windows 11 EoL, (b) AIPC capability becoming a refresh driver, (c) commercial customer ROI from on-device AI workloads — all support continued mix shift. We model AIPC penetration reaching 30-32% by end-FY25 and 45-50% by FY27.

4. Future-Ready Structural Savings — Target Raised to $2B+

"We are making progress with the execution of the future-ready accelerated plan that we announced last quarter, and we are now expecting to exceed our goal and deliver at least $2 billion in gross annual run rate structural savings by the end of fiscal year 2025."
— Enrique Lores, CEO

The Future-Ready program target raised to $2B+ cumulative gross annual run-rate savings by end-FY25 (vs. prior ~$1.4B baseline). The savings come from a combination of process efficiency, automation, portfolio optimization, and operational excellence — the typical levers of a multi-year restructuring program.

Restructuring charges remain at $1.2B total program cost — no incremental charges despite the higher savings target. This implies a meaningfully improved savings-to-cost ratio (now $2B/$1.2B = ~1.7x vs. prior $1.4B/$1.2B = ~1.2x).

Assessment: The savings target raise is operationally important — provides offset to both tariff drag and macro softness while preserving investment in AIPC + growth areas. The savings flow through to operating margin over multi-quarter, not all at once. We expect ~$300-400M of the incremental savings to land in FY25 with the balance benefiting FY26.

5. Pricing Actions to Offset Cost Pressure

"Additionally, we have implemented price increases to help offset cost pressure. While these decisions are never taken lightly, they are essential to maintaining our financial discipline."
— Enrique Lores, CEO

HP has implemented price increases across the portfolio (both PS and Print) to help offset the tariff-driven cost pressure. The CEO confirmed that price increases are happening at industry scale — "we have seen the market and the rest of the competitors taking similar actions." This reflects that the tariff cost shock is being borne broadly across the PC and Print industries.

The pricing approach is selective — not a uniform across-the-board increase. Pricing varies by category, region, and customer segment. The CFO confirmed in Q&A that PC pricing increases have been targeted to commercial categories where demand is more inelastic.

Assessment: The pricing approach is structurally appropriate — selective increases preserve volume while offsetting cost pressure. The risk is whether competitor pricing discipline holds — if competitors discount more aggressively to maintain share, HP's pricing power compresses. We watch this dynamic carefully in Q3.

6. The PC Market — Moderated to Low Single Digits CY25

"We continue to expect the PC market will grow in 2025, but softer than originally planned, driven by increased macro uncertainty. That said, we remain confident in our ability to grow faster than the market and gain share."
— Enrique Lores, CEO

HP's PC market growth assumption moderated to low-single-digit for CY25 (from prior mid-single-digit). The macro deceleration is the binding factor — both business and consumer confidence weaker than three months ago. Industry-wide pricing actions are also potentially impacting demand elasticity.

The Windows 11 refresh remains a catalyst — Win 10 EoL is October 2025, supporting continued commercial PC refresh activity through H2. AIPC adoption similarly supports volume and ASP growth. HP commits to outperforming the market regardless of absolute growth pace.

Assessment: The PC market deceleration is consistent with the broader macro tone. We expect FY25 PC unit growth of 2-3% (vs. HP's low-single-digit guidance) with revenue growth of 4-5% from ASP gains. HP's share-gain narrative is credible — premium category execution + AIPC leadership + supply-chain agility support continued share-gain trajectory.

7. Print — Structural Decline With Margin Discipline

"In print, we continue to expect the market to decline low single digits for calendar year 2025. We expect the actions we are taking to gain full traction in the second half, leading to sequential operating profit improvement."
— Enrique Lores, CEO

Print market expected to decline low-single-digit for CY25 with H2 mid-single-digit decline. HP's Print revenue -3% CC in Q2 in line with expectations. The mix shift toward consumer subscriptions, workforce solutions, and industrial graphics is positive for the long-term Print contribution; the hardware and supplies decline persists.

Print operating margin near top of 16-19% range — strong cost discipline, pricing actions, and grant funding benefit. The structural margin support is real even as revenue declines.

Assessment: Print is positioned as a structural cash cow with disciplined margin management. We don't expect Print to inflect to growth; we expect Print to continue contributing 50-55% of consolidated operating profit through FY25 + FY26 while delivering the cash flow to support capital return + Future-Ready savings investments.

8. Industrial Graphics — Continued Growth With Druva Launch

"In our key growth areas for print, we saw continued growth in consumer subscriptions and workforce solutions, and we drove another quarter of growth in industrial traffic, supported by the portfolio launched at Druva, confirming the high adoption of our new product introduction."
— Enrique Lores, CEO

Industrial graphics continues to grow with the Druva portfolio launch. The new latex printing technology + Printhub software platform combination supports continued share gains in industrial. The collaboration with Scuderia Ferrari on automotive lightweight printing applications demonstrates the technology leadership. Five European Digital Press awards received.

Assessment: Industrial graphics is the under-modeled growth lever within Print. While small in absolute revenue terms, the segment delivers higher growth rates and meaningful margin contribution. We see continued multi-year industrial growth supporting Print's overall margin trajectory.

9. Workforce Experience Platform — AI-Powered Productivity Tool

"A key highlight was the global rollout of the HP workforce experience platform. Combining AI with real-time insights, this power solution enables CIOs to boost productivity and address issues before they disrupt work. Feedback from our early adopters has been incredibly positive."
— Enrique Lores, CEO

The HP Workforce Experience Platform (WXP) is HP's strategic software offering — AI-powered productivity tool that helps CIOs manage device fleet and address IT issues proactively. Combining telemetry from millions of endpoints with AI-driven insights. Early adopter feedback positive.

Strategic importance: this is HP's attempt to add higher-margin software/services revenue on top of the hardware base. If WXP achieves scale, it represents a meaningful margin uplift opportunity — software economics fundamentally better than hardware.

Assessment: WXP is a strategic differentiator but small in current revenue contribution. The multi-year framework potential is real — if WXP reaches material scale (e.g., $500M+ ARR by FY28), it could shift HP's margin trajectory meaningfully. We watch adoption metrics in subsequent prints.

10. AI PC Ecosystem and ISV Growth

"We have more than 100 ISVs reporting that now, and this number is only growing. And this is why we think that the penetration is going to continue to grow because if you are in the commercial space and you buy a PC today, you want to be able to take advantage of those capabilities as software will be available."
— Enrique Lores, CEO

The AIPC ecosystem expansion to 100+ ISVs is the structural foundation for sustained AIPC adoption. The flywheel: more ISVs supporting NPU workloads → higher productivity ROI for commercial buyers → continued AIPC purchase momentum → more ISVs incentivized to develop NPU-optimized applications.

The CFO confirmed AIPC carries 10-20% pricing premium over standard PCs — supports continued ASP growth even as unit volumes face macro uncertainty.

Assessment: The AIPC ecosystem is the strongest structural tailwind for HP. We expect continued ISV expansion + NPU workload optimization + commercial adoption through FY25 + FY26. AIPC penetration trajectory is a key watch item for the next 4-6 quarters.

11. Capital Allocation — Buyback Constrained by Leverage

"With a temporary increase in leverage, we limited our repurchase to offsetting stock compensation dilution. As we look ahead, we will continue to navigate a dynamic environment … We remain fully committed to returning approximately 100% of free cash flow to shareholders over time as long as our gross leverage ratio remains under two times and we do not see more attractive investment opportunities."
— Karen Parkhill, CFO

Q2 capital return ~$400M (dividends + offsetting-dilution buyback only). Leverage temporarily above 2x target due to debt refinancing ahead of upcoming maturity. Buyback reacceleration depends on leverage normalization through H2 FY25.

The capital return framework remains structurally bullish — 100% FCF return over time (when leverage allows) supports the dividend yield + share count reduction thesis. The temporary constraint is operational, not strategic.

Assessment: The capital return constraint is transient. We expect buyback to re-accelerate in Q4 FY25 or Q1 FY26 as leverage normalizes. The dividend + buyback combination supports the equity floor through the tariff cycle headwinds.

Analyst Q&A Highlights

PC Market Trajectory and Channel Inventory

Lead analyst question pressed on the PC market guide cut to low-single-digit growth. Management framed the moderation as "prudence" — based on consumer and business confidence weakness, industry pricing actions affecting demand, and macro uncertainty. Channel inventory is healthy. Windows 11 refresh remains a catalyst even at moderated market growth.

Q: "Can you maybe add a little bit more context around your expectations for the PC market in the second half of the year? What is causing the guide down? Is it large enterprises weaker? Is it small enterprise weaker? … you've talked about raising prices."
— Erik Woodring, Morgan Stanley

A: "When we think about the second half, though, we thought it was important to be more prudent in the estimation that we have for the market given a few of the trends that we see. First of all, we are today in a very different economic situation from where we were a few months ago, in terms of both consumer and business confidence. Second, we have seen announcements across the industry of price increases in the second half, and we've seen the combination of both will potentially have an impact on the demand that we see. We are not integrating any effect from channel inventory."
— Enrique Lores, CEO

Assessment: The PC market moderation is appropriately cautious. We expect HP to outperform the market via share gains in commercial/premium/AIPC. The Win 11 + AIPC combination remains a real catalyst at any reasonable PC market growth pace.

PS Operating Margin Recovery and Long-Term Range

Question on the FY25 PS margin trajectory and the path back to the 5-7% long-term range. Management confirmed FY25 PS margin in the lower half of 5-7% with good sequential improvement and Q3 + Q4 margin recovery driven by tariff mitigation actions reaching full effect.

Q: "Just on personal systems margins, it's encouraging to hear that you'll return to the long-term range next quarter. I was just wondering if you're assuming that you'll be in that 5% to 7% range for the full year as well. And what are some of the key swing factors that you're watching for?"
— Michael Ng, Goldman Sachs

A: "Yes, we do expect for margins to be in the 5% to 7% range for the full year. You know, given the impact in Q2 for the full year, it's likely to be in the lower half of that range, but with good sequential improvement. And in terms of pull-in, we saw some pull-in of in the PC space into Q2, but at the overall level, fairly small. Our estimation, having looked at shipment data and sell-out data, is at less than 1% of growth was driven by pull-in."
— Karen Parkhill, CFO

Assessment: The PS margin recovery commitment to 5-7% range for FY25 is operationally credible. Q3 will be the first test — if PS margin lands ~5% in Q3, the framework holds. If Q3 lands below 5%, the FY25 guide faces further pressure.

AIPC Pricing Premium and Penetration Trajectory

Question on AIPC penetration and ASP impact. Management confirmed AIPC pricing 10-20% above standard PCs, on track for 25%+ of mix by FY25-end, and 50% of shipments target by ~2027.

Q: "I know you're still pretty bullish on AI PCs, but if you can just, you know, help us understand what are some of the killer applications that you hear from your end customers, you know, on this mix shift towards AI PCs. And then within your expectations for PS systems growth, you know, how should we think about the impact of pricing and mix shift towards these AI PCs within your overall growth expectations for that segment?"
— Asiya Merchant, Citigroup

A: "We are very pleased with the progress that we see in AI PCs. Our goal is that they will be more than 25% of the mix of PCs by the end of the year, and this continues to be the case. … Our goal, the goal that we have shared before, is that they will represent around 50% of the total shipments of PCs three years after introductions or about two years from now. We are on track to make that number. On average, they are between 10% and 20% higher priced than regular PCs."
— Enrique Lores, CEO

Assessment: The AIPC trajectory is the strongest secular tailwind for HP. The ASP premium provides margin uplift even at moderated unit volumes.

Tariff Mitigation Mix — Pricing vs. Cost vs. Supply Chain

Question on the composition of HP's tariff mitigation actions. Management walked through the multi-faceted approach: supply-chain shift (largest driver), logistics network redesign (US no longer distribution hub for Canada/LatAm), targeted cost actions, selective pricing.

Q: "I was wondering if you could share a little more color on some of the mitigation impacts that you're putting in place. How much of this tariff impact do you expect to offset from pricing? So maybe some thoughts around what those price increases could look like and which areas of the market would you be targeting versus cost actions versus potentially moving supply chain?"
— Wamsi Mohan, Bank of America

A: "We accelerated the shift of factories out from China into Southeast Asia, into Mexico, to a certain extent in the US, to mitigate the impact of the change. A quarter ago, we shared that our goal was to have less than 10% of the products in North America being shipped from China by September. We have accelerated that, and we share that now almost no products will be coming from China sold in the US by June. … We have also changed our logistics network. … We have also taken additional cost actions, as Karen mentioned in the call. And also, in a very targeted way, we have also taken price actions across the full portfolio, both in personal systems and in print, to reflect the costs that we have seen."
— Enrique Lores, CEO

Assessment: The tariff mitigation framework is multi-layered and operationally credible. Supply-chain pivot is the largest contributor; pricing is a complementary lever. Full mitigation by Q4 FY25 is achievable but multi-quarter.

Free Cash Flow Trajectory and Working Capital

Question on the FCF guide cut and working capital impacts. Management confirmed the cut follows the earnings cut with additional working capital impact from intentional inventory builds for tariff mitigation. The working capital impact is characterized as temporary.

Q: "Just if you can help us understand, you know, the free cash flow margins ticking down a little bit in terms of your guide. Would help a lot. And what are the drivers for that?"
— Asiya Merchant, Citigroup

A: "Our free cash flow guide that we revised does follow earnings. And so in line with that earnings guide, we did reduce our free cash flow expectations for the year. But it's mainly driven by the reduction that we saw in earnings, which is really driven by the operating margin impact that we had this quarter. That, along with lower than expected working capital improvement, is what caused us to guide down. We still do expect working capital improvement, but just a little lower than we had anticipated given the fact that we're focused on doing everything we can to offset these trade-related costs."
— Karen Parkhill, CFO

Assessment: The FCF cut is consistent with the EPS cut. Working capital normalization through H2 FY25 + FY26 should support cash flow recovery.

What They're NOT Saying

1. Specific FY26 framework articulation. Multi-year framework references but no specific FY26 numbers committed beyond directional commentary.
2. Specific tariff cost dollar magnitude breakdown. $0.12 EPS impact / ~100bp operating margin disclosed, but per-product or per-segment dollar exposure not detailed.
3. Specific WXP revenue contribution or adoption metrics. Qualitative framing ("positive feedback," "early adopters") but no specific revenue or customer count disclosed.
4. Specific Hybrid Systems / Humane integration detail. Mentioned as part of innovation strategy but financial contribution not disclosed.
5. Specific PC market growth by region or customer segment beyond directional. Macro uncertainty framed broadly without segment-level color.
6. Specific pricing increase magnitude by category. "Targeted price increases across the portfolio" but no quantification of average price increase.
7. Specific competitive positioning vs. Dell, Lenovo, Apple on tariff mitigation. HP's pivot acknowledged as faster than prior plan but no explicit peer comparison.
8. Specific buyback acceleration timing post-leverage normalization. Framework restated (100% FCF when leverage <2x) but no explicit Q3/Q4 trajectory.

Market Reaction

• Pre-print setup: HPQ closed May 28, 2025 at ~$27.50. YTD ~-21% (vs S&P +3%); trailing 30-day -5%; trailing 12-month -10%. Stock had been pressured by tariff concerns through April-May.
• After-hours / next-session move: Stock indicated -8 to -12% AH on the FY25 guide cut + EPS miss. The magnitude of the guide cut (-12% midpoint) is the binding driver.
• Volume: Pre-market volume elevated to ~3x average.
• Peers: Dell trading -3 to -5% on read-across. Lenovo (HK-listed) facing similar tariff dynamics. Apple holding on diversified manufacturing footprint.

Interpretive read: The market is processing the print as a tariff-driven guide cut with operational execution intact. The stock decline reflects the EPS reset, not a fundamental challenge to the business model. We expect the stock to stabilize in the $24-$26 range over the coming weeks as the FY25 trajectory becomes clearer. Q3 FY25 print in late August is the next major catalyst — PS margin recovery will be the binding test.

Street Perspective

Debate 1: How Quickly Can Tariff Mitigation Be Completed?

Bull view: HP's supply-chain pivot is structurally faster than peers — moving from "<10% China by September" to "almost zero by June" demonstrates operational agility. Full mitigation by Q4 is achievable. Q3 PS margin recovery to lower half of 5-7% range supports the framework. By FY26, the cost structure normalizes and EPS recovers.

Bear view: Tariff cost shocks are not one-time — the trade environment remains fluid with potential for further escalation. HP's mitigation assumes a stable tariff baseline; if additional tariffs are announced, the mitigation framework re-resets. The temporary cost penalty from operating multiple smaller-scale plants vs. consolidated China footprint persists for multiple quarters.

Our take: The mitigation framework is operationally credible but multi-quarter. We model full tariff mitigation by end of FY25 with continuing residual operating margin pressure into early FY26. The risk is tariff re-escalation, which could extend the mitigation timeline.

Debate 2: Does the Windows 11 + AIPC Refresh Cycle Survive Macro Weakness?

Bull view: Windows 10 EoL in October 2025 is a firm catalyst — enterprises cannot indefinitely defer the migration. AIPC penetration trajectory toward 25%+ of mix by FY25-end is on track. Commercial PC +9% YoY in Q2 demonstrates ongoing refresh momentum. Win 11 + AIPC combination is structurally bullish through FY26.

Bear view: Macro deceleration may delay enterprise PC refresh decisions, deferring Win 11 migration into FY26 + FY27. AIPC penetration could stall if enterprise IT budgets compress. The historical PC refresh cycles have been macro-sensitive even with firm catalysts.

Our take: The refresh cycle is structurally bullish but macro-sensitive. We model PC market growth of low-single-digit for CY25 with HP outperforming via share gains. AIPC penetration reaches 30-32% by end-FY25.

Debate 3: Is Print Operating Margin Durable at 16-19% Range Despite Decline?

Bull view: Print operating margin near the top of 16-19% range in Q2 despite -3% CC revenue decline demonstrates structural cost discipline. The mix shift toward consumer subscriptions + workforce solutions + industrial graphics supports continued margin durability. Print's ~50%+ of consolidated operating profit contribution holds.

Bear view: The Q2 Print margin benefit included grant funding — non-recurring. The underlying market decline persists with H2 mid-single-digit decline guided. Eventually, the volume decline overwhelms the cost discipline.

Our take: Print operating margin durable at 16-18% range through FY25 + FY26. The structural decline is real but the cost discipline + mix shift offsets create a multi-year cash cow profile. We don't expect Print to inflect to growth.

Model Implications & Thesis Scorecard

Model Update

• FY25 estimates: Revenue ~$54B (+2% YoY); non-GAAP operating margin ~7.8%; non-GAAP EPS ~$3.05-$3.15 (in line with revised guide); FCF $2.6-$2.9B
• FY26 estimates: Revenue ~$55-56B (+2-4%); non-GAAP operating margin ~8.5%; non-GAAP EPS ~$3.35-$3.55 (recovery on tariff mitigation + savings); FCF $2.8-$3.1B
• FY27 estimates: Revenue ~$56-58B (+3-4%); non-GAAP operating margin ~8.8-9%; non-GAAP EPS ~$3.60-$3.85; FCF $2.9-$3.3B
• Long-term framework: Low-single-digit revenue growth; operating margin in the 8-9% range; FCF conversion ~85-95% of net income; capital return ~100% of FCF when leverage permits

Thesis Scorecard

Rating & Action

Initiating coverage at Hold. HP Inc. is a structurally challenged business with disciplined operational execution. The Q2 print is a tariff-driven miss with the underlying operational story intact — PS commercial +9% YoY, AIPC ramping on plan, supply-chain pivot accelerated, $2B+ structural savings target raised, Print margin near top of range. The FY25 guide cut to $3.00-$3.30 (from $3.45-$3.75) is material but reflects the tariff cost overhang plus moderated PC market assumption, not a thesis-breaking operational miss. The multi-quarter mitigation framework is credible; the question is whether tariff costs stabilize at current levels (allowing full mitigation by Q4) or escalate further (extending the mitigation timeline into FY26).

Fair value range: $26-$32. Stock at ~$27.50 pre-print; we expect 8-12% pressure post-print toward $24-$25 on the FY25 guide cut. Fair value range reflects (a) FY26 EPS recovery to ~$3.45 midpoint at 8x P/E (low end of historical range); (b) dividend yield support at ~4-5%; (c) capital return framework when leverage normalizes.

What would change our view:

• Upgrade to Outperform: Q3 PS margin recovery to 5.5%+ (top half of long-term range), AIPC penetration accelerating ahead of 25% target, tariff cost stability, FY25 EPS landing above $3.20, FY26 EPS visibility into $3.50+.
• Downgrade to Underperform: Q3 PS margin below 5%, tariff cost re-escalation, FY25 EPS landing below $3.00, AIPC penetration stalling below 25%, capital return constraint persisting beyond Q4.

Key watch items into Q3 FY25 (August 2025):

• PS operating margin recovery — target 5%+ in Q3
• Tariff mitigation progress — full effect targeted by Q4
• AIPC penetration trajectory — 25%+ by FY25-end on track
• Windows 11 refresh commercial momentum
• Future-Ready savings flow-through to operating margin
• Capital structure normalization (leverage back under 2x)
• Buyback re-acceleration
• Print operating margin holding 16-19% range
• WXP platform adoption and growth