HP targets $2B in annualized savings by end of FY25 as AI PC mix surpasses 25%

Earnings Call Insights: HP Inc. (HPQ) Q3 2025

MANAGEMENT VIEW

* CEO Enrique J. Lores reported "fifth consecutive quarter of growth in Q3" with top line revenue up 3% year-over-year, highlighting strong Personal Systems performance and momentum from Windows 11 refresh, AI PC adoption, and services growth. Lores stated, "Our operating profit margins for both Print and Personal Systems were in line with our guidance. And non-GAAP EPS was slightly above the midpoint of our guide, reflecting a sequential improvement of 6%." Cost mitigation, including manufacturing diversification and pricing adjustments, was emphasized, with nearly all North America products now built outside China. Lores noted, "We are on track to reach our future-ready gross annualized savings of $2 billion by the end of fiscal year '25."
* Personal Systems revenue grew 6% year-over-year with commercial and consumer segments both showing strong growth, particularly in AI PCs, which now comprise over 25% of HP's mix. Lores observed, "AI PC category... grew revenue double digit sequentially. It has surpassed our expectations with shipments continuing to ramp, now reaching over 25% of our mix, a quarter ahead of our plan."
* Print revenue declined 3% in constant currency, with growth in key areas such as consumer subscriptions and industrial graphics, despite a more aggressive pricing environment and softer office demand. Lores said, "Demand in the Office segment was slightly softer than anticipated, particularly across North America and parts of Europe. However, we maintained our share position in office, and we continue to focus on profitable unit placements."
* New innovations included the EliteBook Ultra, HP Dimension with Google Beam, and AI-driven tools in both PC and Print portfolios.
* Orit Keinan-Nahon was announced as incoming Chief of Staff, and Alok Juyal as the new Global Head of Investor Relations.
* CFO Karen L. Parkhill stated, "Net revenue was up 3% year-over-year, both nominally and in constant currency, with growth across all regions." Parkhill added, "Gross margin was 20.5%, down year-over-year with a higher mix from Personal Systems, increased trade-related costs and unfavorable currency impacts."

OUTLOOK

* Management expects "fourth quarter non-GAAP diluted EPS to be in the range of $0.87 to $0.97 and GAAP diluted net earnings per share to be in the range of $0.75 to $0.85."
* Personal Systems Q4 revenue is expected to be in line with prior year seasonality; Print revenue also forecast in line with seasonality. Parkhill stated, "we expect Personal Systems margin to be solidly in our 5% to 7% target range, improving sequentially."
* Free cash flow for fiscal year '25 is expected to be between $2.6 billion and $3 billion.
* Lores indicated, "We expect the market to grow mid-single digits in the second half with continued strong momentum from Windows 11 refresh and the AI PC adoption."

FINANCIAL RESULTS

* Non-GAAP diluted net earnings per share was $0.75; GAAP earnings per share was $0.80.
* Cash from operations was approximately $1.7 billion with roughly $1.5 billion in free cash flow.
* Over $400 million was returned to shareholders through dividends and share repurchases.
* Personal Systems delivered a 6% revenue increase and a 5.4% operating margin, achieving a return to the long-term target range. Print operating margin was 17.3%, flat year-over-year.

Q&A

* Kinney Chin, TD Cowen, asked about tariff-related costs and mitigation progress. Parkhill responded, "we were able to mitigate the majority of the tariff costs in Q3 while still delivering EPS slightly above the midpoint of our guide," with Lores adding, "the great majority of products going to the U.S. are not built in China anymore."
* Chin inquired about print outlook amidst return-to-office trends. Lores explained enterprises are prioritizing investments in AI and PCs over print, but print supplies demand remains in line with expectations, suggesting "the business will come back as companies will have to rebuild new hardware."
* Jyhhaw Liu, Evercore ISI, queried AI PC ASPs and Q4 EPS guidance. Lores confirmed a "5% to 10% price increase driven by AI PCs." Parkhill cited Win 11 refresh, AI PC adoption, and holiday uptick as drivers for Q4 EPS improvement.
* David Vogt, UBS, questioned PC market confidence and print margin dynamics. Lores pointed to ongoing demand from Windows 11 and AI PC adoption, while Parkhill noted, "print margins to be at the top end of our range... driven by seasonally higher supplies volume."
* Wamsi Mohan, BofA Securities, focused on print margin volatility and share strategy. Lores stated margin changes are seasonal and "we continue to maintain the ranges that we have seen."
* Michael Ng, Goldman Sachs, asked about pricing and office demand outlook. Lores expects "aggressive price competition is going to continue going forward," with market behavior similar to Q3. Parkhill clarified leverage ratio improvements and capital allocation plans.
* Maya (Morgan Stanley) and Alek Oleg Valero (Loop Capital) raised AI PC demand, SMB refresh trends, Poly business, and product refresh cycles. Lores indicated AI PC adoption is ahead of plan, with strong growth in premium segments and ongoing innovation investment.

SENTIMENT ANALYSIS

* Analysts displayed a mixture of optimism and skepticism, pressing for details on tariff mitigation, margin sustainability, and product demand drivers. Questions reflected cautious curiosity, particularly about PC market seasonality and print trajectory.
* Management maintained a confident and disciplined tone, frequently reiterating progress on cost mitigation and innovation. Lores and Parkhill both used phrases indicating confidence and commitment to their strategic direction, e.g., "we are confident in our ability to mitigate tariffs down the road" and "we are well on track to hit our total program goal."
* Compared to the previous quarter, management's tone was more confident regarding cost mitigation, while analysts remained probing but less focused on near-term risks and more on long-term execution.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for Q4 EPS is higher than the prior quarter's outlook, with a sequential improvement in both Personal Systems revenue and margins.
* Management reported reaching its target AI PC mix one quarter ahead of plan, emphasizing the category's strength.
* Compared to Q2, there was increased confidence in supply chain diversification and tariff mitigation, as nearly all North America-bound products are now built outside China.
* Personal Systems operating margin returned to the target range, addressing Q2 shortfalls attributed to tariffs.
* Analysts' focus shifted from short-term tariff and cash flow concerns in Q2 to structural growth (AI PCs, premium mix) and sustainability of margin improvements.

RISKS AND CONCERNS

* Management cited "continued uncertainty in the global trade environment," aggressive industry pricing, and softer-than-expected office demand in North America and Europe.
* Mitigation strategies include manufacturing diversification, selective pricing actions, ongoing cost reductions, and investment in key growth areas.
* Analysts highlighted concerns about tariff impacts, margin volatility, and print market recovery pace.

FINAL TAKEAWAY

HP Inc. reported strong progress in its transformation, with Personal Systems and AI PCs driving growth and profitability. Management reiterated its confidence in reaching $2 billion in annualized gross run rate savings by fiscal year-end and expects continued momentum from Windows 11 and AI PC adoption. Despite ongoing trade uncertainty and print market challenges, the company’s diversified supply chain, disciplined cost management, and focus on innovation position it to deliver on its strategic and financial objectives in the quarters ahead.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/hpq/earnings/transcripts]

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