Wamsi Mohan: Thank you.
Operator: Your next question comes from the line of Toni Sacconaghi from Bernstein. Please Go ahead.
Toni Sacconaghi: Yes, thank you. I just wanted to follow-up on the question about second-half strength. It sounds like you expect your printing margins to fall pretty notably in the second half. You were 20% this quarter. We’re expecting to be at the high end of the range in the second quarter to be solidly in the range for the second half that would imply printing margins fall considerably. And that’s probably possible given that hardware weakness has been pretty strong the last few quarters, and that may translate into weakening supplies growth and therefore, lower margins. So I’m just trying to reconcile if 65% of your profits are going to have lower margins, perhaps notably lower margins in the second half of the year per your guidance? Why are you optimistic? And if I just roll out normal seasonality right now, it points to 4% decline in revenues. Are you expecting revenues to grow in fiscal ’24?
Tim Brown: Yes. So let me take that, Toni. First of all, just from a general perspective on print, we do expect to be, as you said, at the high end of the range in Q2 and the — kind of — solidly in the range of 16%, 19% for the year. And part of that is driven by what you said where we’re trying to drive our mix from a hardware perspective up that does change the rate a little bit. And we aren’t changing really what we expect from a supplies perspective where we expect Q2, as I noted in the prepared remarks, to be down mid-single-digits in constant currency and then low to mid-single-digits for the year. So I think that mix is really what’s kind of driving the potential for that rate to move back a little bit through the course of the year.
From an overall perspective, we expect PS as we said, to be seasonally stronger in the second-half, and that will drive — and we’ll be in the middle point of the range there. And then from a growth perspective, we do expect PS to grow in low single digits, kind of the 2% to 4% range and print will be flattish to down for the course of the year.
Enrique Lores: And Toni, I think another clarification. When we look at H1 ’24 versus H1 ’23, H2 ’24 versus H2 ’23, EPS will be growing around 7% in the first-half. If you look at the midpoint of our guide, it will be growing 4% in the midpoint of our guide. So we are expecting growth, but the growth will be slightly lower with the projections that we’re making today in the second-half. And as we have said before, we’ve managed the company to grow operating profit dollars. We don’t manage it to deliver on the margin guide we provide. We provide it because we know it’s important for modeling, but this is not what the way we manage the company internally.
Toni Sacconaghi: Thank you.
Enrique Lores: Thank you.
Operator: Your next question comes from the line of Brian Lu from UBS. Please go ahead.
Brian Luke: Hey, thank you for taking the question. This is Brian Luke in for David. So in your view, what are the key drivers and milestones for AI-enabled PCs to get traction with commercial customers. Are customers currently in possession of devices today based on the financial benefits of more robust PC.
Enrique Lores: So first of all, let me say that we remain extremely excited about the opportunity that AI PCs will bring in terms of both the customer value that they will deliver in terms of security, in terms of latency, in terms of cost and also the impact it will have over time in the company. I think milestones come from two — three different angles. First of all, we need to deliver the hardware to be able to support these new models, and we are working on that with the key silicon providers to make sure that we have a wide range of products and a very solid portfolio. Second, we need to make sure that the applications support that and we are working with all the keys of our companies again to make sure they understand the new capabilities and that they build them into their applications.
And third is training both in terms of our customers, but also in terms of the sales teams, either HP or the resellers that will be selling that. And we are working on all fronts. Our projections continue to be that three years after launch, the penetration of AI PCs will be somewhere between 40% and 60% of the total sales that we will be making. And that growth is going to be gradual. There will be some impact in ’24. But since this will be at the end of the year, fiscal year for us, the impact will be modest. If the impact would be bigger in ’25 and the impact will be bigger in ’26. But really from both an innovation and customer value is going to be very significant for our portfolio.
Operator: Your next question comes from the line of Erik Woodring from Morgan Stanley. Please go ahead.
Erik Woodring: Great, thank you so much for taking my question. Enrique, you know, again, nice performance on the supply side, you outperformed expectations for a second consecutive quarter. I’m going to ask you the same question I asked you last quarter, which is just if you can talk about the four-box model and kind of the different factors that are impacting supplies performance? And then if we kind of port that over to the rest of the year, you’ve been flat to growing over the last quarters on the supply side. What are the factors that are driving the deceleration to low to mid-single-digit declines for the entirety of the year, implying the rest of the year deteriorates from here? Thanks so much.
Enrique Lores: Thank you, Erik. And my answer is going to be very similar to the answer I gave you last quarter. So first of all, let me also share that, as we have said many times, looking at quarter-on-quarter comparisons is not a bad way to understand the health of the projections for the Supplies business because each quarter, many things happened that have an impact on the growth comparison quarter-on-quarter. And second, we are not changing the long-term projections for supplies of low to mid-single-digit decline nor the projections that we have for 24, but also, we expect it to be low single low to mid-single digits and no changes in our projections. In terms of what of the performance this quarter, there are as always multiple factors.
First of all, we continue to manage our share and to gain share of supplies. This has always a positive impact. Second, pricing, we have made some pricing adjustments that are having positive impact and also at last quarter, we need to acknowledge that the compare is easy because supplies were declining in Q1 ’23, so that comparison is also positive. On the other side, again, similar to what we discussed last quarter, we continue to see negative impact from usage and negative impact from the size of the installed base that has been shrinking. And then maybe to close a comment on channel inventory that I know is something of interest, channel inventory for supplies and actually for the rest of the business, stays in a very healthy position. So we are in a good position there.
Thank you.
Operator: Your next question comes from the line of Amit Daryani from Evercore ISI. Please go ahead.
Lauren Lucas: This is Lauren on for Amit. I was wondering if you guys could talk a bit about what gives a few conviction for the recovery in the commercial space given the pockets of weakness that you guys saw in Q1? Thanks.
Enrique Lores: Thank you. So first of all, I think we — I would like to start by acknowledging that it’s not only our projection, but it’s really the projection that we see from industry analysts and also from the rest of the key players in the industry and there are multiple factors. I mentioned before the fact that we expect to see more impact from the Windows refresh cycle that is starting, and this will have a bigger impact on the second-half. We also expect to see a positive impact from pricing and mix, given that we expect component cost to increase, but this will also have a positive impact. And then when we look at what we saw this quarter, we have seen more stability on the SMB space. We have seen also more stability in the education space.
We started to see growth in Europe on the PC side that has not happened in a long time. So while we continue to see some areas of weakness like China or, for example, the federal business in the U.S. that we saw softness in January. We continue to believe that the overall market will be improving in the second-half. Thank you.
Lauren Lucas: Great. Thank you.
Operator: Your next question comes from the line of Asiya Merchant from Citigroup. Please go ahead.
Asiya Merchant: Great. Thank you for taking my question. If I may, just given the conviction that you have that commercial will see improvement, maybe if you could talk a little bit about the peripheral side of your business, how that track. And overall, how did the growth portion of your business do as we started the year in ’24, in fiscal ’24?
Enrique Lores: Sure. Thank you, thank you, Asiya. So let’s see, in terms of peripherals, as you are indicating, they have been impacted by the cautiousness that we have seen on the commercial side. And as the commercial market will recover, we expect them — they will be recovering as well. And this is why we have continued to invest in innovation in these categories because we think that long term is a great growth opportunity for us, and this is confirmed both by our customers, our clients and also by resellers. In terms of the growth areas we — several of them started to grow, which was really a very positive sign. We — and for example, we — for me, personally the fact that both services businesses, both our Workforce Solutions business, and our Consumer Services business grew in Q1 is a very important sign of recovery, also because of the strategic importance that this business has for the medium and long-term for the company.
And I think something I would like to highlight to close is tomorrow, we are going to be launching on the consumer services side, the first subscription where we will be integrating hardware into the plan is something that we shared at our Investor Day. Finally, we will be releasing that tomorrow. And again, it’s an important step because you know that one of the key directions we have for the long term is to offer our full portfolio as a subscription. And this will be the first time we are offering for consumers our hardware as well, and you will see us expanding the line over time.
Operator: Your next question comes from the line of Mike Ng from Goldman Sachs. Please go ahead.
Mike Ng: Hey, good afternoon. Thank you very much for the question. I just wanted to follow-up on the commentary around Personal Systems pricing. What drove some of the pricing dynamics in the quarter? I know you guys called out improved commercial mix, but there was also an unfavorable mix shift in consumer. Could you provide a little bit more color there? And maybe just talk a little bit more about your outlook for ASP for the full-year, whether for the industry or for HP. Thank you.
Enrique Lores: Sure. So let me start and maybe Tim will be making additional comments. When we look at Q1 performance quarter-over-quarter, which we think is the best indicator to look at — to monitor progress. PC prices were flattish, driven by commercial. Commercial prices were up and the mix moved a bit to consumer, when — which means that from a mix perspective, we saw a positive impact. But at the same time, rates were down, mostly driven by price pressure that we saw in the low end of the portfolio, especially in the consumer side. And we think that this is a consequence of some of the softness that we saw in some of the consumer markets during the last quarter. But going forward, as commodity costs will increase and also as we see price as mix will evolve more towards commercial, we expect to see an overall increase of PC prices.
Operator: Your next question comes from the line of Krish Sankar from TD Cowen. Please go ahead.
Unidentified Analyst: Hi, thanks for taking my question. This is [Stephen] (ph) calling on behalf of Chris. Enrique, I wanted to ask you about the print business. In terms of the [Technical Difficulty] that you come [Technical Difficulty] your Japanese peers, I was wondering if you’re also seeing that applied on the commercial and supply hardware and also supply portion of your commercial business, especially within the context of any long-term managed contracts and work for solutions? Thank you.
Enrique Lores: Thank you. So far, the pressure that we are seeing is mostly on the consumer side. And this is very similar to the trend that we explained last quarter where we — given where the exchange rate between dollar and yen and euro and yes. Clearly, this is giving a strong advantage to some of our competitors in that space, and we are seeing that in the prices that they are going after. And this is why in the consumer side, you have seen us especially on the more traditional categories we have decided not to go after certain deals because these will be unprofitable customers that we are not interested in targeting. On the commercial side, we have seen more stability. There might be some risk of stabilization. We have some of that in our modeling, but all of this is built into the guide that we have provided today.
Unidentified Analyst: Thank you so much.
Operator: Your next question comes from the line of Aaron Rakers from Wells Fargo. Please go ahead. Aaron, your line is open.
Jacob Wilhelm: Hi, sorry about that. This is Jake on for Aaron. I was just hoping you can get some additional color on your industrial graphics business. It seems like over the past few quarters, you’re seeing a little bit more momentum there. So I was just hoping to see how you need it throughout the remainder of the year?
Enrique Lores: Yes. Thank you. So you said it well. We have started to see some momentum in that part of the business. especially in the labels and packaging side, we have seen some good recovery. And we — you know that we — in May ’24, there is this big show called [Drupal] (ph), which is like the print — major printing event and happens every 4 years. We are — we have prepared a lot of new products and services that we will be launching them. And they usually have a fairly positive impact in the quarters after that. So we are expecting to see that happening in ’24. But good recovery and very good expectations for ’24 as Drupal as we will be launching a new set of products and solutions there.
Operator: That concludes the question-and-answer session today. I will now turn the call back over to Enrique Lores for closing remarks.
Enrique Lores: Perfect. Thank you. So thank you all for joining today. And I’d like to close with 3 messages. First of all, as you saw, Q1 was a solid quarter and a solid way to start the year, where we grew both operating profit and EPS. We remain positive about the outlook that we provided a few quarters, a few months ago about the rest of the year. And as we said, we expect — continue to expect a stronger second-half than first-half. And we also remain very confident in the long-term, especially driven by the opportunities at both hybrid work and AI are bringing to us as a company and the innovation that we are going to be launching around that. So Again, thank you for joining us today and looking forward to continue to talk in the future. Thank you.
Operator: This concludes today’s conference call. Thank you for your participation, and you may now disconnect.
