HP Inc’s (NYSE: HPQ) Print Supplies Woes Drags the Company’s Stock to the Lowest in 8 Years
HP had foreseen the drop
According to the recently posted financial report, supply revenue declined by 3% YoY to approximately $3.3 billion. This is the first drop the segment has witnessed in two years. Contrary to Wallstreet analysts’ prediction of a 3% rise, HP had projected supply revenue drop of the same magnitude for the full fiscal year ending October 2018.
On Wednesday last week, HP took to a conference call explaining the reason for revenue decline and the measures management is taking to ensure that future occurrences are mitigated. In the conference call management pointed fingers to sluggish emerging markets that piled inventories- turns out the company had overestimated its market share in these upcoming markets.
In response to its poor estimation of the market share, the company plans to ramp down inventory to improve product pricing. HP’s Chief Financial Officer (CFO), Steven Fieler proposed improving the company’s business management system which will in effect enhance input quality.
Print supplies despite making up less than a quarter of the company’s total revenue pose a significant effect on the bottom line as a result of their profit margins. According to Toni Sacconaghi of Bernstein, HP’s supplies margin to range from 40% to 50% compared to lesser margins for its PC business.
HP has refused to let go of the print supplies business despite it being evident that the line of business is losing its financial viability over time. It is worth noting that HP’s supplies revenue declined by about $4 billion since 2010 when the iPad unveiled its modern tablet.
This brings in the understanding as to why the company’s investors have been cold long-term viability of the print supplies segment.