HP Delays the Memory Squeeze, but the Second-Half Earnings Test Remains

Results vs. Consensus

The quarter ended April 30, 2026. HP exceeded earnings expectations through a combination of stronger PC economics and a richer product mix. The distinction from Q1 is consequential: the company defended PC profit despite falling units, rather than relying on shipment growth to absorb costs.

Against HP’s own guidance, adjusted EPS exceeded the $0.70–$0.76 range, while GAAP EPS missed the $0.52–$0.58 range. Higher restructuring charges explain why those two assessments differ.

Year-over-year comparison

Sequential comparison

Revenue: Reported growth of 9.0% exceeded constant-currency growth of 6.3%, so currency helped. PC revenue rose 13% despite units falling 7%; that divergence supports pricing, mix and services as the economic explanation. It also means the revenue beat offers limited evidence that customers will absorb further price increases without deferring purchases.

Margins: Personal Systems contributed $121M of incremental operating profit, more than the $114M increase in consolidated adjusted operating profit. Printing profit fell $37M. This makes the Q2 result a meaningful rebuttal to our earlier assumption of immediate PC margin compression, while leaving the group increasingly dependent on a segment facing a tougher cost base.

EPS: Adjusted net earnings rose 16.8%, and the 3.2% lower diluted share count helped EPS grow 21.1%. Lower financing costs also helped relative to expectations. The $342M gap between GAAP and adjusted earnings includes restructuring and other charges, amortization and tax adjustments; $0.86 is a useful operating measure, but the costs of changing the business remain an economic claim on shareholder value.

Segment Performance

Personal Systems: better unit economics, thinner demand support

PC operating profit rose 30% as margin improved to 5.2% from 4.5% a year ago and 5.0% in Q1. Commercial revenue increased 6.8% sequentially, offsetting a 17.6% decline in Consumer. Commercial customers gave HP a better mix of business as it repriced and steered orders toward configurations it could supply profitably.

We took deliberate actions to lower our memory cost by accelerating product reconfiguration and qualifying lower-cost components. We optimized the use of lower-cost inventory on hand while shaping demand to higher-margin units.
— Karen Parkhill, CFO

Assessment: The Q1 expectation of below-range PC margins arrived too early. We give more credit to HP’s ability to protect profit, but the inventory benefit cannot recur indefinitely. Our FY26 PC margin estimate of about 4.35% allows a considerably weaker second half even after the strong first-half result.

Printing: the cash engine is working harder

Printing revenue was flat in dollars and down 2% in constant currency. The 18.3% operating margin delivered $767M of profit, still more than PCs generated, but profit fell 4.6% year over year. Hardware shipments declined 7%, while pricing and currency stabilized revenue. Supplies grew 1% reported and were flat in constant currency.

Assessment: Printing continues to support cash generation, but the Q1 expectation of margins near the top of the long-term range has softened to solidly within it. Spending to place new hardware and higher input costs reduce the cushion precisely as PC margins face their second-half test. We lower our FY26 Print margin assumption from about 18% to about 17.7%.

Key KPIs

Key Topics & Management Commentary

Overall Management Tone: Management was more confident about execution than on the Q1 call, supported by an actual margin beat and stronger cash flow. It remained cautious about the second half and offered no timetable for the CEO search; improved operational confidence did not become a broader strategic reset.

1. Mitigation delays the squeeze without removing it

The four-part response combines supplier agreements, faster configuration decisions, strategic inventory and differentiated pricing with cost reductions. Configuration flexibility is valuable because HP can sell what is economically available rather than protect an inflexible product specification at any cost. That is a more durable capability than the accounting benefit from selling inventory purchased before the latest memory increases.

And as signaled, we expect input costs to continue to increase through the back half. Given that, along with a decreasing benefit from the lower cost inventory on hand, we continue to expect Personal Systems OP rate to be below our long-term range for the remainder of the year.
— Karen Parkhill, CFO

Assessment: The Q2 beat should increase confidence in execution, not eliminate the memory risk. We expect the loss of lower-cost inventory and continuing repricing delays to outweigh those improvements in H2, with a PC margin around 3.6% in our forecast.

2. Refresh demand remains, but pricing is borrowing from later quarters

About 30% of the installed base remains on Windows 10, leaving a replacement pool. Europe and Asia have been catching up with North America’s earlier refresh, and Q2 commercial purchases also benefited from demand pulled forward. The remaining installed base is therefore a multiquarter opportunity, not a promise of uninterrupted shipment growth.

For Q3, we expect below seasonal revenue performance, given first half demand pull forward ahead of commodity price increases.
— Karen Parkhill, CFO

Assessment: The high-teens industry unit contraction expected for H2 CY26 is consistent with our standing elasticity concern. Premium devices can sustain revenue even as low-end buyers defer, but lower units reduce hardware placements that could later generate services revenue. We forecast $28.154B of H2 group sales, below H1’s $28.846B.

3. AI at the edge supports mix before it supports a software valuation

AI-PC penetration reached 44%, a stronger result than our Q1 outlook anticipated. Local inference, security and latency give customers reasons to buy more capable devices, while Z workstations address more demanding workloads. HP IQ and NearSense aim to make the portfolio easier to use together, and WXP now actively manages more than 5.2 million devices.

And we continue to expect AI PCs to be a greater part of our shipments going forward, reaching 60% to 70% next fiscal year, and then above 70% by FY '28.
— Karen Parkhill, CFO

Assessment: The premium-mix pillar is strengthened. We expect AI capability to help HP preserve value per device through the refresh downturn, but a higher shipment mix does not reveal incremental profit per AI PC or paid software attachment. Our FY27 recovery therefore comes from hardware margins and services attach, without assigning a separate platform value to HP IQ.

4. Print renewal trades near-term margin for future customer value

Industrial Graphics recorded an eleventh consecutive quarter of revenue growth and 3D printing a fifth consecutive quarter of double-digit growth. Consumer subscriptions also grew double digits. These businesses are useful offsets to the shrinking traditional hardware base, but the group still needs pricing and share gains to stabilize supplies.

For Q3, we expect print revenue generally in line with normal seasonality. And we expect operating margins near the lower end of our long-term range, reflecting typical seasonality, incremental hardware unit placement and near-term input cost pressures, which we are actively working to mitigate.
— Karen Parkhill, CFO

Assessment: Investing in tanks and office placements can protect future customer relationships, but the payback is delayed. The near-term margin sacrifice is why we no longer treat Print’s high-end FY margin outlook as a reliable offset to memory inflation. The business remains profitable; the support it provides is smaller.

5. Cash recovery restores capacity, not an automatic buyback acceleration

Q2 free cash flow was $780M and gross leverage returned within target. Yet buybacks were $100M versus $325M in Q1, and total cash returned fell to $374M. Receivables and inventory absorbed $1.305B of cash in Q2, largely countered by $929M from payables; supplier funding was an important part of the cash outcome.

We remain committed to returning approximately 100% of our free cash flow to shareholders over time as long as our gross leverage remains under 2x and there aren't better return opportunities.
— Karen Parkhill, CFO

Assessment: Stronger cash flow supports the dividend and a gradual share-count reduction, but management’s conditions matter. H1 free cash flow of $955M leaves $1.845–$2.045B to earn in H2 to reach guidance. Our $2.90B annual estimate assumes better cash conversion; it does not require a sudden return to aggressive repurchases.

6. Restructuring buys efficiency at a visible current cost

HP reaffirmed approximately $1B of gross annualized run-rate savings by the end of FY28, supported by software consolidation, AI-assisted development and broader operating changes. A voluntary early-retirement plan contributed to Q2 restructuring charges. This is a cost of executing the plan, even though it is excluded from adjusted EPS.

We remain on track to generate approximately $1 billion in gross annualized run rate savings by the end of fiscal year 2028.
— Karen Parkhill, CFO

Assessment: We retain cost savings as a margin support rather than add the entire $1B to future profit. HP is reinvesting, and management expects operating expenses to remain roughly flat as a share of revenue. The quarter’s adjusted margin improvement supports that approach, while the GAAP decline argues against treating transformation expenses as irrelevant.

7. The interim team delivered, while the leadership question remains open

The board continues to evaluate candidates with global, multisegment experience, but the call supplied no search deadline or rescheduled Investor Day. The Q2 operating result is evidence that execution can continue under interim leadership; it weakens the case for assuming immediate disruption from the transition.

While we're not in a position to provide a time line, the Board is actively evaluating candidates who align with HP's needs.
— Bruce Broussard, Interim CEO

Assessment: Leadership uncertainty remains a constraint on confidence in the longer-term plan, rather than a fresh negative surprise this quarter. We would give more weight to a credible permanent-CEO framework than to speculative search timetables. No additional earnings penalty is imposed simply because another quarter passed.

8. Input inflation broadens beyond memory

HP also anticipates pressure from oil-related commodities and transportation. Resin is a manageable exposure according to management, while CPU supply constraints are being addressed through procurement and a more diverse silicon portfolio. Those levers reduce supply interruptions but do not guarantee unchanged costs.

We are seeing a rising cost for resin based on the oil situation right now. But that said, it's not too significant for us, and it is built into our outlook.
— Karen Parkhill, CFO

Assessment: The wider cost basket primarily reinforces the lower Print margin outlook rather than creating a separate large earnings cut. Potential tariff refunds are not a base-case benefit: the company described a process it could apply to when eligible, not a receivable available to fund returns now.

Guidance & Outlook

Calling this a simple guide raise misses the lower formal ceiling; calling it only a cut misses management’s improved expected landing point. The old range midpoint was $3.05, but Q1 commentary directed expectations toward $2.90. The new midpoint is $3.00 with that low-end bias removed. We move to $3.00, the top of our previous $2.95–$3.00 estimate range, rather than capitalize the entire Q2 beat into a higher year-end run rate.

Implied second half: Reported H1 adjusted earnings were $1.545B and diluted EPS $1.66. The new full-year range leaves approximately $1.24–$1.44 of H2 EPS, or $0.62–$0.72 per quarter. At the $3.00 midpoint, Q3’s $0.66 guide midpoint leaves approximately $0.68 for Q4. That is a materially lower earnings pace than Q2’s $0.86.

Street check: Q3’s $0.66 midpoint is modestly above the $0.63–$0.64 consensus range. The central forecast is achievable without repeating the Q2 beat, but it still depends on pricing and costs remaining manageable while revenue slows. A Q4 margin trough is management’s expectation; the timing of the subsequent recovery is the key FY27 risk.

Analyst Q&A Highlights

Does the second-half run rate define FY27?

The most consequential challenge was whether a weaker second-half earnings pace would become the starting point for next year. Management offered a margin turning point, but stopped short of annual earnings guidance.

Q: If I think about the back half guide, the EPS run rate, I think, is around $0.65 to $0.70 a quarter. Is that the right baseline for us to think about as we think about fiscal '27, such that we actually imply EPS in the $2.70 to $2.75 range, perhaps fiscal '27? Or are there vectors or things that you can execute on to ensure that there's EPS growth in fiscal '27 versus the '26 guide?
— Amit Daryanani, Evercore

A: We are still in our planning process, so it's too early to give guidance for next fiscal year. But I would note that with this increasing cost of memory in Q3 and Q4, we do expect our Q4 PS margins to reach a trough or a low point in Q4, and we do expect sequential improvement in those margins as we move ahead from there.
— Karen Parkhill, CFO

Assessment: A trough followed by sequential improvement does not promise a return to 5–7% margins next year. Our FY27 EPS falls to $3.00 from $3.10–$3.30 because a gradual recovery is more defensible than the prior 5.5% annual PC margin assumption. It remains above a simple annualization of the weakest quarters.

How much commercial strength was borrowed?

The call quantified the pull-forward issue raised in our Q1 recap. It also identified pricing, mix and services as additional drivers, so the entire beat cannot be assigned to early orders.

Q: I guess maybe the first one to start with, could you just help us frame or help us think about the size of the extent of which the first half commercial strength that we saw in the Personal Systems side benefit from pull-forward dynamics versus what you think is a more durable underlying demand given the fact you do have a Windows refresh in AI PC transition? So I'd love to just understand on the Commercial PC side, how much of the strength you saw was pull forward versus underlying trends?
— Amit Daryanani, Evercore

A: We were pleased with the double-digit growth we delivered in both Consumer and Commercial PS, and that was supported by disciplined pricing, along with a richer mix and continued services expansion. There was some pull forward in Commercial PS, as we mentioned, and we estimate that, that added roughly 2% to 3% of revenue.
— Karen Parkhill, CFO

Assessment: The answer establishes a meaningful timing benefit without making it the sole explanation for growth. We retain premium mix as a durable support, while expecting Q3 revenue to face the payback from accelerated commercial purchases.

Does supply coverage also fix the purchase price?

The distinction between secured units and fixed prices matters because the bear case is primarily about profit, not an inability to ship PCs.

Q: You mentioned earlier that supply was locked in, I think I heard correctly, for memory and HDD for the rest of the year. I think I heard that. Have you also locked in prices too? I'm just curious if you could talk more about how your long-term agreements work.
— Mark Newman, Bernstein

A: In terms of prices, we lock in prices a little bit ahead. We don't lock them in for the very long term because we want to make sure that as prices stabilize and go down, we have an ability to benefit from that.
— Karen Parkhill, CFO

Assessment: Shorter pricing coverage preserves participation in an eventual downturn, but also leaves HP exposed while prices rise. Supply confidence cannot be used as evidence that FY27 margins are already protected; our recovery assumption requires better cost recovery rather than a fully locked low-cost input book.

Are flat supplies a lasting improvement?

The supplies result was better than the long-term decline trajectory. The exchange tested whether inventory, hardware mix or a change in the underlying business explained it.

Q: The Supplies revenue flat constant currency, it's a lot higher than your long-term expectations. Would you say like there was some impact also from a channel inventory step-up? Or is this purely related to maybe the mix of like higher hardware in the quarter or something like that? Can you just help us think through what drove that sort of much better supplies trajectory, and as you think through the course of the year, how that might play out?
— Wamsi Mohan, Bank of America

A: I would start with our channel inventories remain in line and healthy to what we would expect. But our supplies revenue was flat year-over-year in constant currency, a little bit better than our expectations this year to decline low single digit in constant currency. And that was really driven by pricing that we've implemented to help offset the trade-related headwinds as well as share gains. And all of that is helping to offset the headwinds from a lower installed base. That said, we aren't changing our expectations for supplies revenue to decline low single digit in constant currency this fiscal year.
— Karen Parkhill, CFO

Assessment: Pricing and share gain deserve credit, while the unchanged annual decline outlook argues against declaring a structural turnaround. We keep Print revenue declining modestly in FY27, with renewal spending necessary to preserve the cash engine.

Can subscriptions change customer economics?

The subscription discussion supplied an operating reason for attaching services and a dated expansion plan. It did not establish that inflation has already accelerated subscription adoption.

Q: I wanted to ask a little bit on the move towards subscriptions in both print and PC. Just curious if anything's changed in there. We've heard in other pockets of the industry where inflation or component availability might push enterprises or consumers more towards those type of models. I'm wondering if that's something you're seeing or expecting to start to see?
— Timothy Long, Barclays

A: We're seeing great traction, particularly in print, in our All-In Plan, which continues to ramp, and we expect to expand it outside of the U.S. next year. Really, that subscription provides a simple, frictionless experience for customers and an ability to attach additional services like paper that make these customers more profitable over the long term versus a regular traditional print customer.
— Karen Parkhill, CFO

Assessment: The answer explains higher customer lifetime value and gives a FY27 expansion signpost, but does not answer whether rising hardware prices are changing adoption. We include services as a mix support, with no separate earnings step-up for an unmeasured financing-to-subscription conversion.

What They're NOT Saying

1. The size and timing of FY27 PC margin recovery. A Q4 trough is useful direction, but the company did not quantify the following improvement. That uncertainty drives our lower FY27 margin and EPS assumptions.
2. The remaining lower-cost inventory benefit. Management acknowledged it is declining without specifying its earnings contribution. Investors cannot cleanly separate the reusable mitigation capability from the temporary inventory gain.
3. Incremental AI-PC and subscription profit. Shipment mix and subscriber momentum do not reveal margin per device or the size of recurring profit. The valuation still rests on hardware cash earnings.
4. A leadership and Investor Day timetable. The search remains active, but there is no dated catalyst for a new multiyear framework.
5. A quantified FY26 savings delivery bridge. The FY28 run-rate goal is intact; the call did not quantify progress against the roughly $300M FY26 savings expectation discussed in the prior recap. Reinvestment and restructuring cash costs remain important to the net benefit.

Market Reaction

• Pre-print setup: HPQ closed May 27 at $25.49, up 14.4% year to date and 29.0% over the preceding 30 days, but down 10.1% over 12 months. The pre-print 52-week closing range was $18.20–$29.35.
• Reaction session, May 28: The stock opened at $26.28, a 3.1% gap higher, traded between $24.57 and $26.65, and closed at $25.01, down $0.48 or 1.9%.
• Participation and market context: Volume was 36.9M shares versus a 17.2M 30-day average, or 2.2 times normal. The S&P 500 rose 0.6% on the session.

The reversal suggests that the beat was not enough to settle the second-half durability question after a substantial pre-print rally. Contemporary reaction focused on rising memory costs, weaker unit demand and the narrower full-year profit range. That interpretation fits the call’s emphasis on a fading inventory benefit, although price action alone cannot measure how much weight investors assigned to each issue.

The modest decline does not erase the positive operating surprise. It also leaves the stock above our $24 central value: investors are being paid a dividend to wait for recovery, but there is little base-case capital upside at this price. The expected return, rather than the direction of the one-day move, is why we retain Underperform.

Street Perspective

Debate: better mitigation or a temporary inventory advantage?

Bull view: HP grew PC profit 30% in a falling-unit market, demonstrating pricing power and the ability to reconfigure products around scarce inputs. The Q1 sub-5% margin expectation was too pessimistic.

Bear view: Earlier purchases and lower-cost stock protected the quarter. Those benefits diminish while supplier prices continue rising, so Q2 profitability is a poor annualized base.

Our take: Both explanations contributed, but the operating capability deserves more credit than our prior case gave it. The evidence changes the expected severity of the squeeze; it does not remove the squeeze from our H2 forecast.

Debate: is AI-PC penetration enough to overcome weaker units?

Bull view: AI mix at 44% and an unfinished Windows refresh sustain spending per device. More local workloads and service attachment could make premium PCs a more durable replacement category.

Bear view: Higher revenue per unit can reflect cost pass-through rather than higher value captured by HP. Low-end demand weakens, while AI capability becomes standard and loses its price premium.

Our take: We favor the premium-mix thesis for revenue and remain cautious on the profit conversion. A 4.2% FY27 PC margin, below the long-term range, allows growth without assuming AI devices fully neutralize commodity inflation.

Debate: does cash yield make the downside small?

Bull view: The $2.8–$3.0B FCF outlook and restored leverage capacity support an attractive dividend and fewer shares outstanding. That cash return limits the cost of waiting for a margin recovery.

Bear view: Print margins are weakening and H2 carries most of the cash requirement. Supplier funding, restructuring payments and inventory needs can compete with repurchases.

Our take: Cash generation prevents a deeply distressed base valuation, but a dividend is not a guaranteed stock-price floor. The bear case still produces a total-return loss above 20% if the margin recovery disappoints.

Our Estimates & Valuation

The operating bridge

For FY26, we estimate $40.4B of PC revenue and $16.6B of Print revenue. H1 PC profit of $1.041B plus a 3.6% margin on $19.936B of H2 PC revenue produces about $1.759B of annual PC profit. H1 Print profit of $1.532B plus a 17.2% margin on $8.218B of H2 Print revenue produces about $2.945B of annual Print profit. Around $0.90B of corporate, stock compensation and other segment-to-adjusted costs brings group adjusted operating profit to roughly $3.80B.

With approximately $0.50B of financing and other expense, a 16% adjusted tax rate and 924M average diluted shares, that produces roughly $2.78B of adjusted net income and $3.00 EPS. The second-half net-income requirement is approximately $1.23B versus $1.545B already earned in H1. These assumptions allow a margin decline and a cash-flow recovery to coexist; they do not require another $0.86 quarter.

For FY27, $41.5B of PC revenue at 4.2% and $16.5B of Print revenue at 17.5% yield $4.63B of combined segment profit. Subtracting $0.90B of corporate and other costs and $0.50B of financing expense, then applying a 16% tax rate and 905M diluted shares, yields about $3.00 EPS. PC margins recover from our H2 FY26 level but average below our former 5.5% assumption; a lower share count helps keep EPS broadly flat.

Forecast sensitivity: At $41.5B of PC revenue, a 50bp margin change is about $208M of pretax profit, or $0.19 per share after tax on 905M shares. This makes margin recovery much more consequential than a small change in the buyback cadence. Our 16% adjusted tax rate is an analyst assumption, close to Q2’s implied operating tax rate; it is not new tax guidance.

12-month value and total return

We retain the $20–$26 fair-value band and make the central case explicit at $24, using 8 times FY27 adjusted EPS of $3.00. The multiple represents a 12.5% earnings yield: compensation for hardware cyclicality, shrinking traditional Print usage and the cost of transformation, balanced against substantial cash generation and a stronger premium mix. The prior recap gave a valuation range without an explicit multiple; this framework specifies the earnings and recovery assumptions behind our current view.

Returns include $1.20 of dividends over 12 months, assuming the $0.30 quarterly rate continues. The bear case has PC margins near 3.5% and Print near 16.8%, keeping earnings around $2.60 even with modest share reduction. The bull case has PC margin approaching 4.7% with the other base assumptions broadly intact, producing about $3.20 EPS; a more visible recovery supports a 9-times multiple.

Our base return of 0.8% is below an 8% 12-month S&P 500 total-return assumption used for the relative rating. Even the top of the retained $26 band produces only about 8.8% including dividends, while the credible bear case loses 22.4%. The quarter warrants less bearish operating language, but that asymmetry still supports Underperform. The stock would offer a different proposition if its price discounted a weak H2 more fully or if margins recovered faster than our estimates.

Thesis Scorecard Post-Earnings

Overall: The operating thesis is less bearish than at Q1 because HP defended PC margins and accelerated premium mix. Print’s weaker forward contribution and a still-lower second-half earnings pace prevent that improvement from becoming a higher valuation. The key commitments to watch are Q3 EPS of $0.61–$0.71, a fiscal Q4 PC margin trough followed by improvement, Q3 Print margins near the low end with Q4 recovery, FY FCF of $2.8–$3.0B, and progress toward 60–70% AI-PC mix in FY27.

Action: Maintain Underperform with a $24 central value and $20–$26 fair-value band. Faster PC margin recovery without renewed pull-forward, sustained Print cash generation and a credible permanent-CEO framework would support a higher estimate or multiple. A cheap earnings multiple alone is insufficient while the next two quarters test how much of Q2’s profit HP can retain.