Q2 2024 HP Inc Earnings Call

Erik: Good day, everyone, and welcome to the second quarter 2024 HP Incorporated Earnings Conference Call. My name is Erik, and I'll be your conference moderator for today's call. At this time, all participants will be in listen-only mode. We will be facilitating a question and answer session towards the end of the conference. Should you need assistance during the call, please signal a conference specialist by pressing the star key followed by zero. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Orit Keinan-Naghan, Head of Investor Relations. Please go ahead.

Day, everyone and welcome to the second quarter 2024, It's incorporated earnings conference call.

Eric: My name is Eric and it'll be a conference moderator for today's call.

Eric: At this time, all participants will be in listen only mode.

Eric: We will be facilitating a question and answer session towards the end of the conference.

Eric: Do you need assistance during the call. Please signal a conference specialist by pressing the star key.

Eric: Zero.

Eric: As a reminder, this conference is being recorded for replay purposes.

Speaker Change: I would now like to turn the call over to worried came in the hunt.

Speaker Change: Investor Relations. Please go ahead.

Orit Keinan: Good afternoon, everyone, and welcome to HPE's second quarter 2024 earnings conference call. With me today are Enrique Lores, HPE's President and Chief Executive Officer, and Tim Brown, HPE's Interim Chief Financial Officer. Before handing the call over to Enrique, let me remind you that this call is a webcast, and a replay will be available on our website shortly after the call for approximately one year.

Speaker Change: Good afternoon, everyone and welcome to H B second quarter 'twenty 'twenty four earnings conference call with me today are Enrique Laurie H, B, as President and Chief Executive Officer, and Tim Brown, H P's interim Chief Financial Officer before handing the call over to Enrique Let me remind.

Speaker Change: You that this call is a webcast and a replay will be available on our website. Shortly after the call for approximately one year.

Orit Keinan: We posted the earnings release and accompanying slide presentation on our investor relations webpage at investor.hp.com. As always, elements of this presentation are forward-looking and are based on our best view of the world and our businesses as we see them today. For more detailed information, please see disclaimers in the earnings materials relating to forward-looking statements that involve risks, uncertainties, and assumptions. For a discussion of some of these risks, uncertainties, and assumptions, please refer to HP's SEC reports, including our most recent Form 10-K. HP assumes no obligation and does not intend to update any such forward-looking statements.

Speaker Change: We posted the earnings release and accompanying slide presentation on our Investor Relations webpage at Investor, though the H B Dot com.

Speaker Change: As always elements of this presentation are forward looking and are based on our best view of the world and our businesses as we see them today.

Speaker Change: For more detailed information please see disclaimers in the earnings materials relating to forward looking statements that involve risks uncertainties and assumptions.

Speaker Change: For a discussion of some of this risks uncertainties and assumptions. Please refer to Hp's SEC reports, including our most recent Form 10-K.

Speaker Change: H B assumes no obligation N.

Speaker Change: Does not intend to update any such forward looking statements.

Orit Keinan: We also note that the financial information discussed on this call reflects estimates based on information available now and could differ materially from the amounts ultimately reported in HP's SEC filing. During this webcast, unless otherwise specifically noted, all comparisons are year-over-year comparisons with the corresponding year-ago period. In addition, unless otherwise noted, references to HP channel inventory refer to Tier 1 channel inventory. For financial information that has been expressed on a non-GAAP basis, we've included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release for those reconciliations. With that, I'd now like to turn the call over to Enrique.

Speaker Change: We also note that the financial information discussed on this call reflects estimates based on information available now and could differ materially from the amounts ultimately reported in Hp's SEC filings.

Speaker Change: During this webcast unless otherwise specifically noted all comparisons are year over year comparisons with the corresponding year ago period.

Speaker Change: In addition, unless otherwise noted references to H B channel inventory refer to tier one channel inventory so far.

Speaker Change: Until information that has been expressed on a non-GAAP basis. We've included reconciliations to the comparable GAAP information.

Speaker Change: Please refer to the tables and slide presentation accompanying today's earnings release for those reconciliations.

Speaker Change: With that I'd now like to turn the call over to Enrique.

Enrique Lores: Thank you, Orit, and thank you all for joining today's call. When we started the fiscal year, we committed to very specific goals.

Enrique Lores: Thank you all right. Thank you all for joining today's call.

Enrique: When do we start to the fiscal year, we committed to very specific goals.

Enrique Lores: Drive profitable growth in our core, accelerate in key growth areas, and deliver operational efficiency. I am pleased to say we accomplished this and delivered a solid quarter and first half. The focus of our teams and actions we have taken continue to drive results and build momentum. We delivered non-GAAP operating profit and non-GAAP EPS growth on a sequential and year-over-year basis. We made good progress against our future ready plan, and we continue to invest in innovative technologies with a strong emphasis on AI and hybrid.

Enrique: Profit growth in our core accelerating key growth areas and deliver operational efficiency.

I am pleased to say, we accomplished these and delivered a solid quarter and first half.

Enrique: The focus of our teams and actions, we have taken and continue to drive results and build momentum.

Enrique: We delivered non-GAAP operating profit a non-GAAP EPS growth on a sequential and year over year basis.

Enrique: We made good progress against our future ready plan.

Enrique: We continue to invest in innovative technologies with a strong emphasis on AI and.

Enrique: Hybrid today I will cover our second quarter results.

Enrique Lores: Today, I will cover our second quarter results, including the recovery we are starting to see in commercial PCs, progress against our strategic priorities, key innovations we are bringing to market, and our expectations for the remainder of fiscal year 2024. Then I will turn the call over to Tim for a deeper dive into our financials and outlook. I will start with our results. We continue to do well in a dynamic and competitive environment. While our net revenue was down 1%, the rate of decline slowed for the fourth quarter.

Enrique: <unk> the recovery, we are starting to see in commercial Pcs progress against our strategic priorities key innovations, we are bringing to market and our expectations for the remainder of fiscal year 2024.

Speaker Change: Then I will turn the call over to Tim for a deeper dive into our financials and outlook.

Enrique Lores: Personal systems also returned to growth for the first time in eight quarters. This is a good indicator of overall market stabilization and solid execution. Non-GAAP operating profit grew 2%, and non-GAAP EPS was up 4% year-over-year, which was slightly above the midpoint of our last quarter's guidance. In terms of new innovations, Q2 was one of our most significant quarters. At our Amplify Partner Conference in March, we showcased over 100 AI-enabled solutions redefining productivity and collaboration. This event is our largest annual channel conference, attracting over 1,500 of our top partners from 95 countries.

Timothy J. Brown: I will start with our results for.

Timothy J. Brown: We continue to navigate well dynamic and competitive environment.

Speaker Change: While our net revenue was down 1% the rate of decline slowed for the for third quarter.

Timothy J. Brown: Personal systems also returned to growth for the first time.

Timothy J. Brown: At quarter.

Timothy J. Brown: This is a good indicator of overall market stabilization and solid execution.

Timothy J. Brown: non-GAAP operating profit grew 2% and non-GAAP EPS was up 4% year over year, which was slightly above the midpoint of our last quarter's guide.

Timothy J. Brown: In terms of new innovations Q2 was one of our most significant quarter.

Timothy J. Brown: At our amplify partner conference in March we showcased over 100.

Timothy J. Brown: Enable solutions redefining productivity and collaboration.

Timothy J. Brown: This event is our largest channel conference attracting over 1500 of our top partners from 95 countries.

Enrique Lores: It inspired our partners and will help us to drive long-term sustainable growth. Let me share some of the key innovations we announced. For the more than half a million data scientists who are using our workstation solutions to create AI models that improve company workflows, we had a lot to share. We announced the HP AI Creation Center, the world's most comprehensive workstation solution for AI development. And we unveiled a strategic collaboration with NVIDIA to integrate their pre-trained models and software into our AI studio set of tools. They will allow customers to access, share, and edit their data science workflows more easily from anywhere.

Timothy J. Brown: At inspire our partners and will help us to drive long term sustained growth.

Timothy J. Brown: Let me share some of the key innovations we announced.

Timothy J. Brown: For the more than half a million data scientists, who are using our workstation solutions to create even more than that to improve company workflows.

Timothy J. Brown: We had a lot to share.

Timothy J. Brown: We announced the HP <unk> Aviation center, the world's most comprehensive workstation solutions for AI development.

Timothy J. Brown: And we unveiled our strategic collaboration with Nvidia do we integrate that are prepaying models and software into our AI studio set of tools.

Timothy J. Brown: They will allow customers to access share and edit their data <unk> workflows more easily from anywhere.

Enrique Lores: At the same time, we launched the industry's largest portfolio of AIPCs, the first to deliver the benefits of running AI locally on the device for improved performance, efficiency, and privacy. In print, we shared how AI will unlock opportunities to make printing smarter, more efficient, and more personalized, and we unveiled our new color laser jet series optimized for small and medium businesses. We also stepped up in our key growth areas. For hybrid systems, we expanded our portfolio of room solutions with a Poly Studio 360-degree camera, enabling more immersive meeting experiences.

At the same time, we launched the industry's largest portfolio of a P C.

Timothy J. Brown: First to deliver the benefits of running a locally on the device for improved performance.

As you can see on privacy.

Timothy J. Brown: In print, we shared how AI will unlock opportunities to make printing smarter more efficient and more personalized.

Timothy J. Brown: And we unveiled our new color laser get serious optimized for small and medium businesses.

Timothy J. Brown: We also stepped up in our key growth areas in hybrid systems, we expanded our portfolio of rooms solutions with how poorly studio a 360 degree camera.

Timothy J. Brown: Namely more immersive experiences.

Enrique Lores: In Workforce Solutions, we introduced an enhanced workforce experience platform, providing CIOs with an AI-enabled digital experience to unlock the full potential of their team. In addition, we are enabling our partners and sales teams to capitalize on the AI opportunity. We introduced the industry's first ever role-based AI master class training and certification program.

Timothy J. Brown: In workforce solutions, we introduced an enhanced workforce expedient platform, providing here yours, we can yeah.

Timothy J. Brown: <unk> enables digital experience to unlock the full potential of their teams.

Timothy J. Brown: In addition, we are enabling our partners and sales teams to capitalize on the AI opportunity.

Timothy J. Brown: We have introduced.

Timothy J. Brown: Industry's first ever broad based.

Timothy J. Brown: <unk> Master class training and certification program.

Enrique Lores: Doubling down on our momentum, last week at the Microsoft Co-Pilot Plus PC event, we introduced the world's most powerful, ultra-mobile, next-gen AI PC. As designed from the ground up, they enable on-the-go leaders and freelancers to harness the most powerful AI technologies available. We also showcased our new AI Helix logo that helps you easily identify and select this new category of devices.

Timothy J. Brown: Doubling down on our momentum last week at the Microsoft Copilot, plus PC event, we introduced the world's most powerful ultra mobile Nextgen <unk>.

Timothy J. Brown: These values from the ground up they enable undergo leaders from freelancers to harmonize the most powerful AI technologies available.

Timothy J. Brown: We also showcased our new AI helix logo that helps you easily identify and select this new category of devices.

Enrique Lores: Initial reaction has been overwhelmingly positive, with our next-gen devices being recognized as some of the most premium announced and having beyond-cutting-edge hardware. We are already helping customers unlock tangible value from their AI PCs. For example, collaborating with Deloitte Consulting, together we have created an on-device assistant to drive efficiency around common IT support challenges. The solution has the potential to return close to 100,000 hours of productivity to its practitioners. This is a powerful example of the positive impact of AI-PCR.

Timothy J. Brown: Initial reaction has been overwhelmingly positive with our next gen devices being recognized as some of the most premier my Mount and having the young cutting edge hardware.

Timothy J. Brown: We're already helping customers unlock tangible value from their AI Pcs.

Timothy J. Brown: For example, collaborating with Deloitte consulting together, we have created and on device assistant to drive efficiency around common.

Timothy J. Brown: Support challenges.

Timothy J. Brown: Our solution has the potential to return close to 100000 hours of productivity to date practitioners.

Timothy J. Brown: This is a powerful example of the positive impact of AI Pcs.

Enrique Lores: One of HP's most important assets is the strength of our brand, and we continue to invest in it to build even greater value. This quarter, we announced a historic title partnership with Scuderia Ferrari. This is an opportunity to elevate our brand and reach new audiences and geographies, particularly younger and premium customers. It also improves the effectiveness and efficiency of our marketing spending. And we are excited to work with Scuderia Ferrari, leveraging the latest HP innovations to help them drive their competitive advantage. HP is a trusted brand.

Timothy J. Brown: One of Hp's, most important asset is the strength of our brand and we continue to invest in it to build even greater value.

Timothy J. Brown: This quarter, we announced a historic title partnership we've screwed area for a variety.

Timothy J. Brown: This is an opportunity to elevate our brand and reach new audiences and geographies, particularly younger and premium customers.

Timothy J. Brown: It also improves the effectiveness and efficiency of our marketing spend.

Timothy J. Brown: And we are excited to work with this good area for variety.

Timothy J. Brown: Average in the latest HP innovations to help them drive their competitive advantage.

Enrique Lores: We are a company that stands for more than just the products we make. For the fifth year in a row, HP has earned a triple A rating from CDP. Next month, we will release our annual sustainable impact report outlining the progress we're making towards our climate action, human rights, and digital equity goals. Let me now share in more detail what we saw in each of our businesses in Q2. In personal systems, we executed our strategy, driving both revenue growth and increasing profitability year over year. The PS revenue was $8.4 billion, that's up 3% year over year, driven mainly by market growth and signs of commercial recovery. Our P.S.

Timothy J. Brown: HP is a trusted brand.

Timothy J. Brown: We're a company that stands for more than just the products we make.

Timothy J. Brown: For the fifth year in a row HP has earned a triple a rating from CDP.

Timothy J. Brown: Next month, we will release, our annual sustainable impact report outlining the progress we are making towards our climate action human rights and digital equity goals.

Enrique Lores: Operating profit was 6%, in line with our expectations and solidly within our long-term target range. Our teams continue to show their focus by driving profitable PC share in Calendar Q1 in high-value categories like commercial premium and mobile workstations. Importantly, we continue to invest in high-value and key growth areas. For example, in gaming, we grew revenue year over year again this quarter. PS services was up, with strong growth in managed services, and in hybrid systems, we saw signs of recovery. Here we show sequential growth and strong performance in video collaboration.

Timothy J. Brown: Let me now share in more detail, what we saw in each of our businesses in Q2.

Timothy J. Brown: In personal systems, we executed our strategy driving both revenue growth and increasing profitability year over year.

Timothy J. Brown: <unk> revenue was $8 4 billion, that's up 3% year over year, driven mainly by market growth and signs of commercial recovery.

Timothy J. Brown: Our peers operating profit was 6% in line with our expectations and solidly within our long term target range.

Timothy J. Brown: Our teams continue to show their focus by driving profitable PC share in calendar Q1 in high value categories like commercial premium and mobile workstation.

Timothy J. Brown: Importantly, we continue to invest and grow in high value in key growth areas.

Timothy J. Brown: In gaming, we grew revenue year over year again this quarter.

Speaker Change: Yes services was up with strong growth in managed services.

And in hybrid systems, we saw signs of recovery.

Speaker Change: Here, we drove sequential growth and strong performance in video collaboration.

Enrique Lores: We remain confident that this evolving market will be a long-term growth opportunity. In the second half, we expect to see the introduction of AI-powered PCs accelerate demand over and above the anticipated PC refresh cycle and Windows 11 rollout. We believe the AI opportunity in front of us will help drive higher ASPs and premium makers. We have a comprehensive portfolio of AI-enabled devices, from consumer, commercial, gaming, accessories, room solutions, and advanced workstation solutions.

Speaker Change: We remain confident that this evolving market will be a long term growth opportunity.

Speaker Change: In the second half, we expect to see the introduction of apc's accelerated demand over and above the anticipated PC refresh cycle and Windows 11 rollout we.

Speaker Change: We believe the AI opportunity in front of Us will help drive higher asp's and premium mix.

Speaker Change: We have a comprehensive portfolio of AI enabled devices from consumer commercial gaming accessories room solutions to advance workstation solutions.

Enrique Lores: We're innovating beyond hardware with software and security solutions like HP AI Companion and HP WorkSecurity that use deep learning, behavior analysis, and AI-based protection against malware and deep fakes. With a rich history and proven track record of integrating meaningful AI technologies such as noise removal and gesture controls, together with our strong innovation pipeline, we are well positioned to capture the opportunity and lead the industry. Turning to print, results were in line with what we expected. Revenue was $4.4 billion, down 8% year over year and flat quarter over quarter.

Speaker Change: We are innovating beyond hardware with software and security solutions like HP AIA companion and HP was security that uses deep learning behavior analyses.

Speaker Change: AI based protection became smallwood and deep fakes.

Speaker Change: We have rich history, and proven track record of integrating meaningful AI technologies, such as noise removal and gesture controls took.

Speaker Change: With our strong innovation pipeline, we are well positioned to capture the opportunity and lead the industry.

Speaker Change: Turning to print results were in line with what we expected.

Speaker Change: Revenue was $4 4 billion.

Speaker Change: 8% year over year and flat quarter over quarter.

Enrique Lores: We continue to see soft demand, particularly in China and some parts of Europe. The pricing environment remains competitive in consumer with intensifying pressure in commercial. We continue to make progress on pricing and share gains in supplies, with revenue results as expected. We delivered a print operating profit of 19% in line with our guidance.

Speaker Change: We continue to see soft demand, particularly in China, and some parts of Europe.

Speaker Change: The pricing environment remains competitive and consumer with intensifying pressure in commercial.

Speaker Change: We continued to make progress on pricing and share gains in supplies with revenue results as expected.

Speaker Change: We delivered print operating profit of 19% in line with our guidance.

Enrique Lores: Once again, we demonstrated disciplined cost management in Proof Makes and the benefits of the strong innovations we have brought to market. Our focus in print remains on regaining profitable share, and we are making progress. We grow share quarter over quarter in home and in office.

Speaker Change: Once again, we demonstrated disciplined cost management improved mix and the benefits of the strong innovation, we have brought to market.

Speaker Change: Our focus in trained remains on regaining profitable share and we are making progress.

Speaker Change: We grew share quarter over quarter in home and office.

Enrique Lores: Importantly, we gained share year over year and sequentially in big banks and business inks. We also grew in key growth areas like consumer services. We saw growth in revenue and in subscriber numbers across Instant Ink and our new All-in plan. In industrial graphics, we continue to accelerate the adoption of digital technology. In Q2, we grew year over year and for the third straight quarter. We also expanded our portfolio, adding new end-to-end automation processes, leveraging AI and robotics.

Speaker Change: Importantly, we gained share year over year and sequentially in big tanks and business ink.

Speaker Change: We also grew in key growth areas like consumer services.

Speaker Change: We saw growth in revenue and in subscriber numbers across instant ink and our new all in plants.

Speaker Change: And industrial graphics, we continue to accelerate the adoption of digital technologies.

Speaker Change: In Q2, we grew year over year and for the third straight quarter.

Speaker Change: We also expanded our portfolio, adding new end to end formation processes, leveraging AI and robotics.

Enrique Lores: These are on full display right now at Drupal 2024, the largest trade fair for the printing and graphics industry worldwide. 3D continues to be impacted by elongated purchasing cycles in Q2, reflecting constraints on capital spending. However, the decline in hardware was partially offset by growth in services and supplies.

Speaker Change: These are on full display right now through 2024, the largest trade fair for the printing in the graphics industry worldwide.

Speaker Change: <unk> continued to be impacted by elongated purchasing cycles in Q2, reflecting constraints on capital spending.

Speaker Change: The decline in hardware was partially offset by growth in services and supplies.

Enrique Lores: Overall, in Q2, we made good progress against our future ready strategy. We continue to execute according to plan, and we are on track to deliver on our three-year annual gross grant rate structural cost savings target of $1.6 billion by the end of fiscal year 2025. We remain committed to our capital allocation strategy and expect to return approximately 100% of our free cash flow to shareholders in fiscal year 2024 and over time, as long as our gross leverage ratio remains below two times and unless higher ROI opportunities arise.

Speaker Change: Overall in Q2, we made good progress against our future ready strategy, we continue to execute according to plan and we are on track to deliver on our three year <unk>.

Speaker Change: <unk> gross run rate structural cost savings target of one six.

Speaker Change: $6 billion by the end of fiscal year 2025.

Speaker Change: We remain committed to our capital allocation strategy and expect to return approximately 100% of our free cash flow to shareholders in fiscal year, 2024, and overtime as long as our gross leverage ratio remains below two times.

Speaker Change: Less higher IRR opportunities alright.

Enrique Lores: Looking forward to Q3 and the second half of fiscal year 24, we expect the demand environment will remain dynamic and that our markets will continue to be very competitive. That said, we're encouraged by the progress we have made, delivering a solid first half. And we expect a stronger second half. The anticipated commercial PC refresh, as well as early gains from the AIPC, together with our plans to gain share in print, gives us confidence we are well positioned to drive growth in our core business.

Speaker Change: Looking forward to Q3 in the second half of fiscal year 'twenty four we expect the demand environment will remain dynamic and that our markets will continue to be very competitive.

Speaker Change: That said, we're encouraged by the progress we have made delivering a solid first half.

And we expect a stronger second half.

Speaker Change: The anticipated commercial PC refresh as well as early gains from the AIA PC together with our plans to gain share in print gives us confidence we are well positioned to drive growth in our core business here.

Enrique Lores: At the same time, we see significant opportunities to accelerate in our key growth areas. As you have seen repeatedly, we are delivering on expectations and will continue to maintain our focus as we enter the second half. We remain confident in our strategy and will continue to execute on our plan.

Speaker Change: At the same time, we see significant opportunities to accelerate in our key growth areas.

Speaker Change: As you have seen repeatedly we are delivering to expectations and will continue to maintain our focus as we enter the second half.

We remain confident in our strategy and we'll continue to execute on our plan.

Speaker Change: Let me now turn it over to Tim.

Timothy J. Brown: Thank you and good afternoon, everyone. We delivered solid financial results in Q2, driven by disciplined financial management and focused execution while navigating a dynamic and competitive environment. We are pleased with the continued progress we made in Q2 toward delivering on our financial targets. Total revenue decline slowed further. Our gross profit dollars and margin, our non-GAAP operating profit dollars and margin, and our non-GAAP EPS all improved both year over year and quarter over quarter.

Timothy J. Brown: Thank you and good afternoon, everyone. We delivered solid financial results in Q2, driven by disciplined financial management and focused execution, while navigating a dynamic and competitive environment.

Timothy J. Brown: We are pleased with our continued progress we made in Q2 toward delivering on our financial commitments total revenue declines slowed further our gross profit dollars and margin our non-GAAP operating profit dollars and margin and our non-GAAP EPS, all improved both year over year and quarter over quarter.

Timothy J. Brown: In addition, we generated solid free cash flow. We achieved these results by simultaneously reinvesting in our key growth areas and in AI and managing through a mixed market environment characterized by slightly stronger PS commercial performance, balanced against continuing print market demand challenges. Now, let's take a closer look at the details of the corridor.

Timothy J. Brown: In addition, we generated solid free cash flow, we achieved these results while simultaneously reinvesting in our key growth areas and in AI and managing through a mixed market environment characterized by slightly stronger commercial performance balanced against continuing print market demand challenges now lets take a closer.

Timothy J. Brown: Look at the details of the quarter.

Timothy J. Brown: Net revenue was $12.8 billion in the quarter, down 1% both nominally and in constant currency. America's increased 2%, EMEA declined 3%, and APHA declined 5%. APJ was impacted as soft demand in China continues.

Timothy J. Brown: Net revenue was $12 $8 million in the quarter down 1%, both nominally and in constant currency.

Timothy J. Brown: In constant currency Americas increased 2% EMEA declined 3% and a P J declined 5%.

Timothy J. Brown: P J was impacted as soft demand in China continued.

Timothy J. Brown: Gross margin was 23.6% in the quarter, up one point year over year, primarily due to lower commodity and logistics costs and cost savings, partially offset by unfavorable mix and competitive, non-GAAP operating expenses were $1.9 billion, or 14.8% of revenue. The year-over-year increase in operating expenses was driven primarily by continued investments in higher variable compensation, partially offset by cost reduction. Non-GAAP operating profit was $1.1 billion, up 2%. Non-GAAP net OI&E was $158 million, down primarily due to lower interest expense driven by a decrease in debt. Non-GAAP diluted net earnings per share increased $0.03 or 4% to $0.82, with a diluted share count of approximately 1 billion shares.

Gross margin was 23, 6% in the quarter up one point year over year, primarily due to lower commodity and logistics costs and cost savings, partially offset by unfavorable mix and competitive pricing.

Timothy J. Brown: non-GAAP operating expenses were $1 $9 billion or 14, 8% of revenue the.

Timothy J. Brown: The year over year increase in operating expenses was driven primarily by continued investments and higher variable compensation, partially offset by cost reductions.

Timothy J. Brown: non-GAAP operating profit was $1 $1 billion up 2% non-GAAP net <unk> was $158 million down primarily due to lower interest expense driven by a decrease in debt outstanding.

Timothy J. Brown: non-GAAP diluted net earnings per share increased three or 4% to 82.

Timothy J. Brown: With a diluted share count of approximately 1 billion shares.

Timothy J. Brown: Non-GAAP diluted net earnings per share excludes a net expense totaling $205 million, primarily related to amortization of intangibles, restructuring and other charges, acquisition and divestiture related charges, non-operating retirement related credits, and other tax adjustments. Now, let's turn to segment performance.

Timothy J. Brown: non-GAAP diluted net earnings per share excludes a net expense totaling $205 million, primarily related to amortization of intangibles restructuring and other charges acquisition and divestiture related charges non operating retirement related credits and other tax adjustments as a result.

Timothy J. Brown: Q2, GAAP diluted net earnings per share was <unk> 61.

Timothy J. Brown: Now, let's turn to segment performance.

Timothy J. Brown: In Q2, personal systems revenue was $8.4 billion, up 3% or 2% in constant currency, driven by higher volumes led by commercial, partially offset by a decline in ASPs and continued weakness in China. Total units were up 7%, with consumer down 1% and commercial up 12%. Personal systems revenue returned to growth, exceeding our expectations. We're encouraged by the positive momentum exiting Q2 as we head into the seasonally stronger second half of the year.

Timothy J. Brown: In Q2 personal systems revenue was $8 $4 billion up 3% or 2% in constant currency driven by higher volumes led by commercial partially offset by a decline in asps.

Timothy J. Brown: And continued weakness in China.

Timothy J. Brown: Total units were up 7% with consumer down, 1% and commercial up 12%.

Timothy J. Brown: Personal systems revenue returned to growth exceeding our expectations.

Timothy J. Brown: We are encouraged by the positive momentum exiting Q2, as we head into the seasonally stronger second half of the year.

Timothy J. Brown: Drilling into the details, consumer revenue is down 3% and commercial revenue is up 6%, representing greater than 70% of personal systems revenue. ASPs were flat quarter over quarter driven by a favorable mix shift toward commercial and increased consumer price, offset largely by an increased mix of lore and device. While our market share declined in calendar Q1 as competition intensified, we drove share improvements in high-value categories, including mobile workstations and commercial premiums.

Timothy J. Brown: Drilling into the details consumer revenue was down 3% and commercial revenue was up 6% representing greater than 70% of personal systems revenue Asps were flat quarter over quarter, driven by a favorable mix shift toward commercial and increased consumer pricing.

Timothy J. Brown: <unk> largely by an increased mix of lower end devices, while our market share decline in calendar Q1 as competition intensified we drove share improvements in high value categories, including mobile workstations and commercial premium.

Timothy J. Brown: We remain focused on driving profitable revenue and share growth in both our consumer and commercial markets. Last week, we announced the launch of our next-gen AIPC, which is part of a series of launches planned for this year that will expand our portfolio of AIPCs as we enable our customers to deploy advanced AI technology at the edge.

Timothy J. Brown: We remain focused on driving profitable revenue and share growth in both our consumer and commercial markets.

Timothy J. Brown: Last week, we announced the launch of our Nexgen AI APC, which is part of a series of launches planned for this year that will expand our portfolio of AI Pcs as we enable our customers to deploy advanced AI technology at the edge.

Timothy J. Brown: Personal systems delivered $508 million of operating profit, with operating margins of 6.0%. Our margin increased 0.7 points year over year, driven by lower commodity and logistics costs and cost savings, including future ready savings, offset partially by competitive pricing and investment. In print, our results reflected our focus on improving execution and diligently managing costs as we continue to navigate a very competitive print market. In Q2, total print revenue was $4.4 billion, down 8% on a reported basis and down 7% in constant current.

Timothy J. Brown: Personal systems delivered $508 million of operating profit with operating margins of 6.0%.

Timothy J. Brown: Our margin increased 0.7 points year over year, driven by lower commodity and logistics costs and cost savings, including future ready savings offset partially by competitive pricing and investments.

Timothy J. Brown: In print our results reflected our focus on improving execution and diligently managing cost as we continued to navigate a very competitive market.

Timothy J. Brown: In Q2 total print revenue was $4 $4 billion down 8% on a reported basis and down 7% in constant currency.

Timothy J. Brown: The decline was driven by declines in both hardware and supplies. Hardware revenue was down 18% year over year, driven by lower volumes attributable primarily to continued weak demand, especially in China and EMEA, as well as share loss in both home and office due to aggressive pricing, partially driven by further depreciation of the yen. Total hardware units decreased 17% year over year.

Timothy J. Brown: Decline was driven by declines in both hardware and supplies.

Timothy J. Brown: Hardware revenue was down 18% year over year, driven by lower volumes attributable primarily to continued weak demand, especially in China, and EMEA as well as share loss in both home and office due to aggressive pricing, partially driven by further depreciation of the yen.

Timothy J. Brown: Total hardware units decreased 17% year over year.

Timothy J. Brown: Industrial Graphics Group revenue for the third consecutive quarter was driven by supplies and service, offsetting softer hardware demand as we believe our customers delayed purchasing decisions in anticipation of Drupal, which started yesterday. By customer segment, commercial revenue decreased 12% with units down 17%. Consumer revenue decreased 16% with units down 17%.

Timothy J. Brown: Industrial graphics grew revenue for the third consecutive quarter driven by supplies and service.

Timothy J. Brown: Offsetting softer hardware demand as we believe our customers delayed purchasing decisions in anticipation of <unk>, which started yesterday.

Timothy J. Brown: By customer segment commercial revenue decreased 12% with units down 17% consumer revenue decreased 16% with units down 17% in big tank, we increased our volumes and market share sequentially, partially offsetting continued market softness in <unk>.

Timothy J. Brown: In Big Tank, we increased our volumes and market share sequentially, partially offsetting continued market softness and competitive pricing in the traditional home ink market. In Consumer Services, we drove revenue and subscriber growth in both our instant ink and all-in plans. Supplies revenue was $2.9 billion, down 5% on a reported basis and down 4% in constant currency.

Timothy J. Brown: <unk> pricing in the traditional home ink market in consumer services, we drove revenue and subscriber growth in both our instant ink and all in plans.

Supplies revenue was $2 $9 billion down 5% on a reported basis and down 4% in constant currency. This was in line with our outlook print operating profit was $829 million down 8% year over year and operating margin was 19%.

Timothy J. Brown: This was in line with our outlook. Print operating profit was $829 million, down 8% year over year, and operating margin was 19%. Operating margin was flat year over year, driven by disciplined cost management, including future ready savings and favorable mix offset by competitive hardware prices. Turning to our Future Ready Transformation Plan, we are on track to achieve our fiscal year-end 24 goal of delivering a cumulative 70% of our year-end 25 goal of gross annual run rate structural cost savings of $1.6 billion.

Timothy J. Brown: Operating margin was flat year over year, driven by disciplined cost management, including future ready savings and favorable mix offset by competitive hardware pricing.

Timothy J. Brown: Turning to our future ready transformation plan, we are on track to achieve our fiscal year end 2004 goal of delivering a cumulative 70% of our year end 25 goal of gross annual run rates structural cost savings of $1 $6 billion, we expect to achieve this by driving efficiencies in our core businesses.

Timothy J. Brown: We expect to achieve this by driving efficiencies in our core business. We are pleased with our progress in reducing our costs across print and packaging. We continue to see the benefits of initiatives we launched in previous quarters. For example, we continue to optimize our location strategy with plans for additional site actions this year. In our digital transformation initiatives, we're accelerating our generative AI capabilities, including rolling out AI tools, such as GitHub Copilot, to approximately 60% of our developers, as well as implementing HP-specific large language models to improve efficiencies across our sales and service organizations.

Timothy J. Brown: Yeah.

Timothy J. Brown: We are pleased with our progress in reducing our cost across print NPS. We continue to see the benefits of initiatives, we launched in prior quarters.

Timothy J. Brown: For example, we continued to optimize our location strategy with plans for additional site actions this year in.

Timothy J. Brown: In our digital transformation initiatives, we are accelerating our generative AI capabilities, including rolling out AI tools, such as our co pilot to approximately 60% of our developers as well as implementing HP specific large language models to improve efficiencies across our sales and service.

Organizations.

Timothy J. Brown: In marketing, we continue to optimize and in-house our digital media capabilities and maximize programmatic investment. Specifically, we are delivering savings through AI-enhanced capabilities, scaling content production, and working towards translation cost efficiency, helping us improve our NPI marketing efficiency with lower agency costs and next-gen market insights and measurements. In P.S., we are simplifying our portfolio, as we announced last week, our brand simplification strategy across our consumer and commercial portfolio

Timothy J. Brown: In marketing, we continue to optimize.

Timothy J. Brown: In house, our digital media capabilities and maximize programmatic investments.

Timothy J. Brown: Specifically, we are delivering savings to AI enhanced capabilities scaling content production and working towards translation cost efficiencies, helping us improve our NPI marketing efficiency with lower agency costs, and nextgen market insights and measurement.

Timothy J. Brown: NPS, we are simplifying our portfolio as we announced last week, our brand simplification strategy across our consumer and commercial portfolios.

Timothy J. Brown: Now let me move to cash flow and capital allocation. Q2 cash flow from operations was approximately $581 million, and free cash flow was $481 million, driven by net earnings. The cash conversion cycle was minus 31 days in the quarter.

Timothy J. Brown: Now, let me move to cash flow and capital allocation Q.

Timothy J. Brown: Q2 cash flow from operations was approximately $581 million and free cash flow was $481 million driven by net earnings the cash conversion cycle was minus 31 days in the quarter decreased two days sequentially due to days inventory, increasing nine days days payable.

Timothy J. Brown: This decreased by two days sequentially due to days inventory increasing nine days, days payable increasing 16 days, and days receivable increasing five. The increase in DOI was driven primarily by an increase in strategic buys and sea shipments, both of which drive economic value. The strategic buys continue to allow us to take advantage of attractive economic offers from suppliers to reduce the near-term financial impact of rising commodity costs. The increase in DPO is driven by an increase in account payable due to purchase timing and a higher strategic buy.

Timothy J. Brown: Leasing 16 days and days receivable, increasing five days.

Timothy J. Brown: The increase in <unk> was driven primarily by an increase in strategic buys and see shipments both of which drive economic value the.

Timothy J. Brown: The strategic buys continuing to allow us to take advantage of attractive economic offerings from suppliers to reduce the near term financial impact of rising commodity costs. The increase in deep you always driven by an increase in accounts payable due to purchase timing the higher strategic buy inventory in Q2, we returned approximately three.

Timothy J. Brown: In Q2, we returned approximately $369 million to shareholders, including $100 million in share repurchases and $269 million in cash dividends. We finished the quarter within our target leverage range and expect to return approximately 100% of our free cash flow to shareholders in FY24 and over time, as long as our gross leverage ratio remains below two times and fewer higher ROI opportunities arise. Looking forward to the second half of FY24, keep the following in mind related to our FY24 and Q3 financial outlook. As Enrique said, we expect performance in the second half of fiscal 24 will be seasonally stronger than in the first half. We continue to model multiple scenarios based on several assumptions.

Timothy J. Brown: <unk> hundred $69 million to shareholders, including $100 million in share repurchases and $269 million in cash dividends. We finished the quarter within our target leverage range and expect to return approximately 100% of our free cash flow to shareholders in FY 'twenty, four and overtime as long as our gross leverage ratio.

Timothy J. Brown: Remains below two times and less higher IRR opportunities arise.

Timothy J. Brown: Looking forward to the second half of FY 'twenty four keep the following in mind related to our FY 'twenty, four and Q3 financial outlook.

Timothy J. Brown: As Enrique said, we expect performance in the second half of fiscal 'twenty, four will be seasonally stronger than the first half.

Speaker Change: We continue to model multiple scenarios based on several assumptions for FY 'twenty four we are narrowing our non-GAAP EPS outlook range to 30.

Timothy J. Brown: For FY24, we are narrowing our non-GAAP EPS outlook range to $0.30. However, we continue to see a range of potential outcomes for H224, which is reflected in our updated outlook. We remain focused on improving our cost structure and our performance while continuing to invest in our growth business. Regarding OI&E expense, we now expect it will be approximately $0.6 billion in FY24. We continue to expect free cash flow to be in the range of $3.1 to $3.6 billion for FY24, improving sequentially in both fiscal Q3 and Q4. As a reminder, our free cash flow outlook includes approximately $300 million of restructuring cash outflows.

Speaker Change: But we continue to see a range of potential outcomes for <unk> 24, which is reflected in our updated outlook we remain.

Speaker Change: Focused on improving our cost structure and our performance, while continuing to invest in our growth businesses.

Speaker Change: Regarding <unk> expense, we now expect it will be approximately zero point $6 billion in FY 'twenty four.

Speaker Change: We continue to expect free cash flow to be in the range of three 1% to $3 $6 billion for FY 'twenty four <unk>.

Speaker Change: Improving sequentially in both fiscal Q3 and Q4.

Speaker Change: As a reminder, our free cash flow outlook includes approximately $300 million of restructuring cash outflows.

Timothy J. Brown: Turning to personal systems, specifically for Q3, we expect personal systems revenue to increase sequentially by a high single digit, though slightly less than typical seasonality. We expect personal systems margins to be towards the high end of our long-term target range of 5 to 7% in Q3, augmented by disciplined cost management action. For FY24, we expect personal assistance margins to be solidly within our long-term target range driven by improved PC revenue in the back half of the year. Continued Mix Improvements and Cost Efficient

Speaker Change: Turning to personal systems, specifically for Q3, we expect personal systems revenue will increase sequentially by a high single digit, though slightly less than typical seasonality.

Speaker Change: We expect personal systems margins to be towards the high end of our long term target range of 5% to 7% in Q3 augmented by disciplined cost management actions.

Speaker Change: For FY 'twenty four we expect personal systems margins to be solidly within our long term target range driven by improved PC revenue in the back half of the year continued mix improvements and cost efficiencies.

Timothy J. Brown: In print, we expect print to stabilize in the second half of the year, consistent with the market outlook. For Q3, we expect print revenue to decrease sequentially by a low single digit, in line with typical seasonality. We continue to expect supplies revenue in FY24 to decline by a low to mid-single digit in constant current. For Q3, we expect print margins to be in the upper half of our 16% to 19% range and now expect FY24 margins to be at the high end of the range, driven by rigorous cost management.

Speaker Change: In print, we expect print to stabilize in the second half of the year consistent with the market outlook for Q3, we expect print revenue decreased sequentially by low single digit in line with typical seasonality.

Speaker Change: We continue to expect supplies revenue in FY 'twenty four to decline by a low to mid single digit in constant currency.

Speaker Change: For Q3, we expect print margins to be in the upper half of our 16% to 19% range and now expect FY 'twenty for margins to be at the high end of the range driven by rigorous cost management.

Timothy J. Brown: Taking these considerations into account, we are providing the following outlook for Q3 and fiscal year 2024. We expect third quarter non-GAAP diluted net earnings per share to be in the range of $0.78 to $0.92 and third quarter GAAP diluted net earnings per share to be in the range of $0.63 to $0.77. We expect FY 24 non-GAAP diluted net earnings per share to be in the range of $3.30 to $3.60, and FY 24 GAAP diluted net earnings per share to be in the range of $2.60 to $2.90.

Speaker Change: Taking these considerations into account we are providing the following outlook for Q3 and fiscal year 2024.

Speaker Change: We expect third quarter non-GAAP diluted net earnings per share to be in the range of 78 to <unk> 92.

Speaker Change: And third quarter GAAP diluted net earnings per share to be in the range of 63 to.

77.

Speaker Change: We expect FY 'twenty non-GAAP diluted net earnings per share to be in the range of $3 30 to $3 60.

Speaker Change: And FY 'twenty four GAAP diluted net earnings per share to be in the range of $2 60.

Speaker Change: To $2 90.

Timothy J. Brown: I'll stop here so we can open the lines for your questions.

Speaker Change: I'll stop here. So we can open the lines for your questions.

Erik: Thank you, and we will now begin the question and answer session. To ask a question, you may press start, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star. Number two. We also ask that you please limit yourself to one question and a single follow-up. And our first questioner today will be... Erik Woodring from Morgan Stanley. Please go ahead.

Speaker Change: Thank you and we will now begin the question and answer session.

Speaker Change: I ask a question you May press Star then one on your Touchtone phone.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: To withdraw your question. Please press Star then the tool.

Speaker Change: We also ask that you please limit yourself to one question and a single follow up.

Speaker Change: And our first questioner today will be.

Speaker Change: Erik Woodring with Morgan Stanley.

Speaker Change: Please go ahead.

Erik William Richard Woodring: Great, thank you guys very much for taking my questions. Enrique, maybe if I turn to you first, you know, at the start of the year, you had talked about the print business kind of performing in line with the market at roughly flat this year. Year-to-date, it's declining, let's call it mid single digits. You're telling us supplies will continue to decline low to mid single digits, but you expect the market to stabilize in the second half of the year.

Erik William Richard Woodring: Great. Thank you guys very much for taking my questions.

Speaker Change: <unk>, maybe if I could turn to you first.

Speaker Change: At the start of the year, you had talked about that business kind of performing in line with the market at roughly flat. This year year to date, it's declining let's call. It mid single digits, you're telling our suppliers will continue to decline low to mid single digits.

Speaker Change: But you expect the market to stabilize in the second half of the year and so.

Erik William Richard Woodring: And so, maybe my first question is, why do you believe, other than, you know, easier year-over-year comparisons, the print market will stabilize in the second half of the year? Are there any underlying factors that have impacted the print business? Are any of those changing as you look to the second half, like yen competition and broader market trends? And then, as we think about hardware seasonality in the second half of the year, should we still be thinking about an improving trend sequentially there? How does that translate to year-over-year growth?

Speaker Change: Maybe my first question is why do you believe other than easier year over year compares the pet market will stabilize in the second half of the year are there any of the underlying factors that have impacted the print business or any of those changing as you look to the second half Lake.

Enrique Lores: If you could unpack all of that just for print, that would be super helpful. And then I'll have a follow-up. All right. Thank you, Enrique.

Speaker Change: And competition.

Speaker Change: And broader market trends and then and then as we think about hardware seasonality in the second half of the year.

Speaker Change: Should we still be thinking should we still be thinking about an improving trend sequentially there.

Speaker Change: How does that translate to year over year growth kind of if you could unpack all of that just for a footprint that would be super helpful. And then I have a follow up. Thank you sure. Thank you. Eric is that is a long question. So I'll try to cover all your points. So first of all in terms of.

Enrique Lores: Thank you, Erik. It's a long question, so I'll try to cover all your points. First of all, in terms of what we see from a competitive perspective, as you mentioned, we continue to see fairly strong competition on the consumer side, similar to what we were seeing in Q1, where we have seen intensified competition in the office space, driven by similar reasons than what has happened in the consumer space, but this clearly has evolved.

Speaker Change: Ooh, what do we see from a competitive perspective as you mentioned, we continue to see fairly strong competition in the consumer side similar to what we were seeing in Q1, where we have seen an intensified competition is in the LTE space.

Speaker Change: We've been by the main similar reasons.

A webcast happening in consumer so this clearly has evolved.

Enrique Lores: When we think about the second half, we expect the market to stabilize, and you mentioned one of the key reasons, which is an easier comparison to what we had in the second half of 2023. Our underlying drivers that give us some confidence in this number are, first of all, what we are seeing from a usage perspective, that usage has been fairly stable, especially in the office space per printer, which is always a good indicator of what is going to be the overall performance from a printer perspective.

Speaker Change: When we think about the second half we expect the market to stabilize and you've mentioned one of the key reasons, which is an easier compare to what we had in the second half of 2023.

Linda: Linda underlying drivers that give us some confidence in these number first of all is what we're seeing from a usage perspective that usage has been fairly stable, especially in the office space better printer, which is always a good indicator of what is going to be.

Linda: Overall performance from a from a painter perspective.

Enrique Lores: And then in terms of our own projections for HP, as we shared last quarter, we have been working to reduce our cost structure to be able to be more competitive. So we expect to have some share gains in the second half again because of the cost actions that we have been driving during the previous two quarters. So in our performance, you should see that. And again, this doesn't mean that we have changed our strategy. Our strategy continues to be profitable growth. It's just that we will be able to sell more units in a profitable way and capture share this way.

Linda: And then in terms of our own projections for HP.

Linda: As we shared last quarter, we have been working to reduce our cost structure to be able to be more competitive and we expect to have some share gains in the second half.

Erik William Richard Woodring: Okay, that's helpful. Thank you.

Linda: <unk> because of the cost actions that we have been driving during the previous two quarters.

Linda: Our performance you should see.

Speaker Change: Thats reflected and again this doesn't mean that we have changed our strategy. Our strategy continues to be profitable growth. He says that we will be able to sell more units in a profitable way and capture share in this way.

Erik William Richard Woodring: And then maybe if I just, if I stay on the printing side, again, really strong print operating margin performance. It was down about 90 basis points sequentially. And I think print as a print supplies as a percentage of the print mix was up sequentially, just given the weak print hardware trends. So, I deduce that would mean supplies margins were lower sequentially. Can you maybe just unpackage one, if that's the correct way of thinking about it? And then two, what drove that trend and how is it impacting your view on print operating margins for the second half of the year? Thanks so much.

Speaker Change: Okay. That's helpful. Thank you.

Speaker Change: And then maybe if I just if I stay on the printing side.

Speaker Change: Again really strong operating margin performance.

Speaker Change: Down about 90 basis points sequentially, and I think print as a print supplies as a percentage of print mix was up sequentially.

Speaker Change: Just given the weak print hardware trends so.

Speaker Change: I deduce that would mean supplies margins were lower sequentially can you maybe just some package one if that's correct way of thinking about it and then too.

Speaker Change: What drove that trend and how is it impacting your view on print operating margins for the second half of the year. Thanks, So much.

Timothy J. Brown: Erik, this is Tim. I'll maybe take that. From a quarter-on-quarter perspective, you're right. It was down about nine-tenths. It wasn't so much driven by supplies, or the gross margin rate. We made some additional investments, most notably in variable compensation, and that was a bigger driver.

Timothy J. Brown: Eric This is Tim I'll, maybe take that from a quarter on quarter perspective, Youre right. It was down about nine tenths. It wasn't so much driven by supplies gross margin rate.

Timothy J. Brown: We made some additional investments.

Timothy J. Brown: Most notably in variable compensation and that was a bigger driver.

Timothy J. Brown: Margins for the second half. Oh, I'm sorry. Margins for.

Timothy J. Brown: At the end for the second half.

Timothy J. Brown: Oh, I'm sorry, margins for the second half. Yeah, from a print perspective, as I said in the prepared remarks, we expect to be in the upper half of the long-term 16 to 19% range in Q3, and for the full year at the upper end of that range. I think a couple of the key drivers that you should think about is one, the 2H sequential improvement we do expect to see in hardware, both from a market and a share perspective.

Speaker Change: Oh, I'm, sorry margins for the second half yet from a print perspective.

Speaker Change: As I said in the prepared remarks, we expect to be in the upper half of the long term, 16% to 19% range in Q3 and for the full year at the upper end of that range I think a couple of the key drivers that you could you should think about as one the $2 eight sequential improvement we do expect to see in hardware both from a market Andy.

Speaker Change: Share perspective.

Timothy J. Brown: We'll continue to focus on driving operating profit dollars as well through new business models and cost management. And then just to reiterate, as we said before, our forecast for supplies is a decline of low to mid-single digits in constant currency for the full year. And again, from a range perspective, just keep in mind, we provide these for modeling purposes, but we really are trying to drive OP dollars.

Speaker Change: We will continue to focus on driving operating profit dollars as well through new business models and cost management and then.

Speaker Change: Just to reiterate as we said before our forecast for supplies to decline low to mid single digits in constant currency.

Speaker Change: For the full year and.

And again from a from a range perspective, just keep in mind, we provide these for modeling purposes, but we really are trying to drive <unk>.

Erik William Richard Woodring: Great. Thank you so much, guys.

Speaker Change: Great. Thank you so much guys.

Greg: Thanks, Greg.

Michael Ng: Your next question comes from Michael Ng with Goldman Sachs. Please go ahead.

Speaker Change: Your next question comes from Michael <unk> with Goldman Sachs.

Speaker Change: Please go ahead.

Michael Ng: Hey, good afternoon. Thank you for the question. Within personal systems, we saw inflections in both consumer and commercial units. You talked a little bit about a recovery that you're seeing in commercial PCs. I was wondering if you could just expand a little bit more on that. Are there any specific verticals where you're seeing that spend improve? Do you think this is an indication of a broader IT spending recovery? And then, are there any comments you can make on the slowdown in consumer unit growth? Thank you.

Michael: Hey, good afternoon. Thank you for the question.

Speaker Change: Within personal systems, we saw inflections in both consumer and commercial units you talked a little bit about.

Speaker Change: A recovery that youre seeing in commercial Pcs I was wondering if you could just expand a little bit more on that.

Speaker Change: Are there any specific.

Speaker Change: Verticals, where youre seeing that spend improve.

Speaker Change: Do you think this is an indication of a broader it spending recovery.

Speaker Change: Then are there any comments you can make on.

Speaker Change: Slowdown in consumer unit growth. Thank you.

Enrique Lores: Sure, so let me start and maybe Tim wants to make a few comments afterwards. So I think you highlighted the key points. We saw, for the first time in eight quarters, growth in the PC business, and really, the commercial highlight of the quarter, that performed even better than we were expecting. It was fairly consistent between North America and Europe and between enterprise and SMB. So probably the key thing is that there was not one segment was across these segments.

Speaker Change: Sure. So let me start then maybe team wants to make a few comments afterwards.

Speaker Change: You highlighted the key point, we so for the first time in eight quarters growth in the PC business and really commercial is a highlight of the quarter performed even better than we were expecting it was fairly consistent between North America, and Europe and between enterprise and SMB.

Speaker Change: Probably the key thing is that there is not one segment was a crazy segment, while we continue to see weakness in Asia, especially in China.

Enrique Lores: Well, we continue to see weakness in Asia, especially in China. Probably some of the underlying factors that we have seen as the drivers of this are the need to refresh the install base as it has been aging, and especially as we look at the second half, when we look at the funnel of opportunities that we see that is significantly bigger than what we had last year, and also the fact that we are starting to see some deals driven by Windows 11.

Speaker Change: Currently some of the underlying factors that we have seen the drivers of these is the.

Speaker Change: Need to refurbish the installed base and it has been a gem.

Speaker Change: Especially as we look at the second half when we look at the funnel of opportunities that we see that is significantly bigger than what we had last year.

Speaker Change: Also the fact that we're starting to see some deals driven by Windows 11 refresh. This is what we are reflecting in the projections that we have for the second half would we expect these momentum to continue.

Enrique Lores: This is what we are reflecting in the projections that we have for the second half, where we expect this momentum to continue. Also, for the second half, we expect the federal business, and this is a U.S.-focused comment, will also improve because during the first half, the business was impacted by the budget discussions, and some of them have been released. We expect the federal business to also be stronger in the second half.

Speaker Change: Also on the <unk> for the second half we expect the federal business and this is a U S focused comment will also improve because were in the first half the business was impacted by the budget discussions.

Speaker Change: Some of them has been released we expect the federal business to also be stronger in the second half.

Michael Ng: Excellent. Thank you for all that color, Enrique.

Speaker Change: Okay excellent. Thank you. Thank you for all that color Enrique.

Speaker Change: And then just as a quick follow up it was helpful to hear about the.

Speaker Change: Inventory increased due to strategic buys I was just wondering if you could refresh us on your philosophy and strategy around those component purchases.

Said differently.

Speaker Change: How far in advance are you buying some of these components.

When would we see more market rate component flow through the P&L. Thank you.

Michael Ng: And then, just as a quick follow-up, it was helpful to hear about the inventory increase due to strategic buys. I was just wondering if you could refresh us on your philosophy and strategy around those component purchases. Say differently, you know, how far in advance are you buying some of these components? When would we see more market rate component flow through the P&L?

Tom: Sure. This is Tom I'll take that one.

Michael Ng: Thank you.

Speaker Change: We haven't changed our philosophy or our strategy with respect to strategic buys we will continue to kind of evaluate down based on the opportunities that present themselves and if it makes financial sense for us we'll take those.

Timothy J. Brown: Sure, this is Tim. I'll take that one. We haven't changed our philosophy or our strategy with respect to strategic buys. We'll continue to kind of evaluate them based on the opportunities that present themselves, and if it makes financial sense for us, we'll take those. And certainly, that is something that we try and offset from an operational standpoint by making our operational inventory more efficient and using that more efficiently. So I think that just underscores our commitment to efficient inventory management. And I think as we look forward, we'll continue to do that.

Speaker Change: Certainly that that is.

Speaker Change: It's something that we try and do an offset from an operational standpoint by making our operational inventory more efficiently utilize that more efficient so.

Speaker Change: That just underscores our commitment to efficient inventory management and I think as we look forward.

Speaker Change: We'll continue to do that and there is not a predetermined view in terms of how many months or you're really looking at the impact it will have in the P&L.

Enrique Lores: And there is not a predetermined view in terms of how many months or really looking at the impact it will have on the P&L and our ability to consume those products in a reasonable amount of time.

Speaker Change: Our ability to consume those production a reasonable amount of time.

Michael Ng: Great. Thank you, Enrique. Thank you, Tim. Thank you.

Speaker Change: Great. Thank you Enrique Thank you Tim.

Speaker Change: Thank you.

Amit Jawaharlaz Daryanani: Your next question comes from Amit Daryanani with Evercore ISI.

Speaker Change: Your next question comes from Amit <unk>.

Speaker Change: With Evercore ISI.

Speaker Change: Please go ahead.

Shannon Siemsen Cross: Hey, guys, thanks for taking the question. This is Shannon for Amit.

Chen: Hey, guys. Thanks for taking the question. This is Chen on for Amit.

Chen: I just had a question on on the commentary about AIP. It seems that you talked about on the call. We're obviously hearing a lot about <unk> across the supply chain heading into the second half of the year.

Chen: Just thinking about the adoption curve of these AIP season.

Speaker Change: It really because there hasnt been a killer app introduce Jack how should we think about the mix of <unk> versus non AIP season.

Speaker Change: Units shipped in the back half of the year and how should we think about you at ash.

Speaker Change: Asps talent, we've added Pcs.

Speaker Change: For fiscal 'twenty, four and 'twenty five.

Shannon Siemsen Cross: I just had a question on the commentary about AI PCs that you talked about on the call. We're obviously hearing a lot about AI PCs across the supply chain heading into, you know, the second half of the year. Are you thinking about, you know, the adoption curve of these AI PCs? And, you know, really, because there hasn't been a killer app introduced yet, how should we think about the mix of AI PCs versus non-AI PCs and your units shipped in the back half of the year? And how should we think about the ASP talents from these AI PCs, you know, in fiscal 24 and 25? Sure.

Enrique Lores: We think that the penetration of AIPCs is going to be growing over time. This year, we have products coming both from the first generation that we announced in January and February and for the next generation that we just announced a couple of weeks ago.

Speaker Change: Sure, we think that the penetration of <unk> is going to be growing overtime.

Speaker Change: This year, we have barrels coming both from the first generation that we announced in January and February for the next generation that we just announced a couple of weeks ago. If we look at the total of both we expect that.

Enrique Lores: If we look at the total of both, we expect that they will represent around 10 percent of the shipments for the second half. That's how we are quantifying that. But really, the impact will be more relevant in 2025 and in 2026. In fact, we expect that AIPCs, which at that point will be all new generation, will be between 40 and 60 percent of our sales three years after launch. That's kind of how we're looking at it. And as we discussed before, we continue to believe that they will drive an improvement in average selling price of between 5 and 10 percent.

Speaker Change: They represent around 10% of the shipments for the second half. That's how we are quantifying that but really the impact will be more relevant in 'twenty five 'twenty six.

Speaker Change: We expect that <unk> and at that point will be on new generation will be two will be between 40 and 60% of our sales figures. After lunch that's kind of how we're looking at that.

Speaker Change: As we have discussed before we continue to believe that they will drive an improvement in average selling price of between five and 10%.

Speaker Change: Yeah.

Shannon Siemsen Cross: Great, thanks for the caller.

Speaker Change: Great. Thanks for the color.

Speaker Change: Thank you.

Wamsi Mohan: Your next question comes from Wamsi Mohan with Bank of America. Please go ahead.

Speaker Change: The next question comes.

<unk> Z Mohan.

Speaker Change: Bank of America.

Speaker Change: Please go ahead.

Wamsi Mohan: Yes, thank you so much. Enrique, I was wondering if you could expand a little more on the comment on signs of commercial recovery in PF. I think you said partially driven by the option of wind 11. How much would you characterize as real traction? Have you seen any real traction yet on wind 10, end of life support driven strength? Or perhaps if you could characterize it even from a COVID refresh perspective or anything else, any color that would be helpful, and have a follow-up. Sure.

Speaker Change: Yes. Thank you so much.

Rick: Rick I was wondering if you could expand a little more on the comment on signs of commercial recovery in PFS. I think you said, partially driven by adoption of around 11.

Speaker Change: How much would you characterize have you seen any real traction yet on win 10 end of life.

Paul: Paul go then driven strength or perhaps if you could characterize it even from a COVID-19 refresh perspective or anything else any color there would be helpful and I have a follow up.

Enrique Lores: Sure. As you know, Wamsi, this was one of the assumptions that we had at the beginning of the year, that Windows 11 Refresh would be impacting the results in the second half, and we are starting to see that. Not so much on the numbers for Q2, but yes, on the funnel that we are starting to see and the opportunities that many of our large enterprise customers are starting to bring us. It's clearly starting to happen.

Speaker Change: Sure.

Speaker Change: How do you know what I'm, saying this was one of the assumptions that we had at the beginning of the year, but when those who live in and refresh would be impacting the results in the second half and we are starting to see that not so much on the numbers for Q2 ideas in the funnel that we are starting to see and the opportunities that.

Speaker Change: Many of our large enterprise customers are starting to bring US is clearly starting to happen during Q2, Microsoft probably states and cost to support the previous operating systems and this always creates an acceleration of the process and this is what we could we have started to see it.

Enrique Lores: During Q2, Microsoft published dates and costs to support the previous operating systems, and this always creates an acceleration of the process, and this is what we have started to see. In parallel to that, as you mentioned, clearly, the installed base has been aging over the last two, three years, and we think this is also impacting the strength that we are starting to see on the commercial side.

Speaker Change: In parallel to that as you mentioned clearly the installed base has been AGM. During the last two three years and we think this is also impacting this thing that we are starting to see on the commercial side.

Wamsi Mohan: Okay, thanks, Enrique. As a follow-up, I was wondering if you could touch a little bit on seasonality. I think you said you're expecting NPS, revenue up, and high single digit. Would you say that like, is there any sense you can give us on how those numbers are going to be? Savings are flowing across BPS and print, just so we would understand sort of, you know, cost savings and things that you're doing on your feature-ready side versus pricing in the mix. Thank you.

Speaker Change: Okay. Thanks, Okay as a follow up.

Speaker Change: I was wondering if you could touch a little bit on the seasonality.

Speaker Change: I think you said, you're expecting NPS revenue up high single digit.

Speaker Change: Slightly below typical seasonality.

Speaker Change: And then continuing to grow into Q4.

Speaker Change: Just wondering maybe if you could put that in perspective of maybe second half versus first half how that might compare to a typical year seasonality half versus half.

Speaker Change: And then just on the margin side, clearly very impressive margins here.

Speaker Change: And you're on track on your future ready program.

Speaker Change: Would you say that like is there any sense you can give us on how those.

Speaker Change: Savings are flowing across across bps and print.

Speaker Change: Just so we would understand sort of.

Speaker Change: Cost savings and things that Youre doing on your feature already side versus pricing and mix. Thank you.

Timothy J. Brown: Tim, do you want to take the seasonality one?

Speaker Change: And do you want to take the seasonality one.

Timothy J. Brown: Yeah, from a, as you said, Wamsi, from a Q3 to Q2, excuse me, Q3 perspective, we do expect to grow sequentially high single digits but slightly below normal seasonality. I think if your question is really about the full half, I think you could think about the seasonality to be slightly stronger than historical for the full half, if you think about Q4 in PCs.

Speaker Change: Yes.

Speaker Change: As he said laundry from our.

Speaker Change: Q3 to Q.

Speaker Change: But Q2 excuse me Q3 perspective, we do expect to grow sequentially high single digits.

Below normal seasonality you think if your question was really about the full half.

Speaker Change: I think you can think about the seasonality to be a slightly stronger than historical for the full half.

Speaker Change: If you think about Q4 and Pcs.

Enrique Lores: And the split between Q3 and Q4, traditionally, Q4 is a stronger quarter, so this is how we have built a guide for the second half and a guide for each quarter. And then, in terms of savings, Tim?

Speaker Change: And the split between Q3 and Q4 traditionally Q4 is a stronger quarter size. This is how we we have been the guide for the second graph and the guide for each quarter.

Speaker Change: And then in terms of savings.

Timothy J. Brown: From a future-ready savings perspective, we do see future readiness across both businesses, but I don't know that it's more pronounced in one versus the other.

Speaker Change: From a future ready savings perspective, we do see the future ready across both businesses I don't know that it's more pronounced in one versus the other we're definitely focused from a core perspective, where were driving some of those efficiencies.

Timothy J. Brown: We're definitely focused from a core perspective where we're driving some of those efficiencies. I think the important thing to note about the future-ready savings is that it does help us deliver our margin rates, even in a challenging demand environment. It is allowing us to reinvest in some of the key growth areas and key areas such as AI and our people.

Speaker Change: I think the important thing to note about the future ready savings as.

Speaker Change: It does help us deliver our margin rates, even in a challenging demand environment in.

Speaker Change: It is allowing us to reinvest in simply key growth areas in key areas, such as AI and our people.

Speaker Change: I'll leave it there.

Wamsi Mohan: Okay, thank you so much. Thank you.

Speaker Change: Okay. Thank you so much thank you.

Ananda Prosad Baruah: The next question comes from Ananda Barua with Loop Capital Market.

Speaker Change: The next question comes from.

Speaker Change: And then the ruler.

Speaker Change: With loop capital markets.

Ananda Prosad Baruah: Please go ahead. Hey, yeah, thanks a lot. Hey guys, good afternoon. Appreciate you guys taking the time to answer the question. I guess, well, yeah, just thinking with PCs, what's a good way to think, Enrique and Sam, about, I guess, you know, kind of margin as you go through the refresh cycle, given that it sounds like you think getting AI PCs is going to, enabled PCs are going to be a sort of disproportionate amount in the mix. And then just a quick follow-up on that, thanks.

Speaker Change: Please go ahead, yes, thanks, a lot hey, guys. Good afternoon I. Appreciate you guys taking the question.

Speaker Change: I guess, yes.

Enrique: Just sticking with PC, what's a good way to think Enrique.

Speaker Change: And Tim about I guess.

Speaker Change: What kind of margin as you go through.

Speaker Change: Kidney refresh cycle given it sounds like you think.

<unk>, yes.

Speaker Change #100: Yes, good question.

Speaker Change #101: And then just a quick follow up thanks.

Enrique Lores: Well, from a margin perspective, Ananda, we are not changing the guidelines that we have provided in the past. We expect the PC business to stay in the 5% to 7% range, and Tim mentioned where we expect this to be for the second half.

Speaker Change #102: Well from a margin perspective, and remember we are not changing the guidelines that we have provided in the past we expect the PC business to stay in the 5% to 7% range and dementia, where we expect this to be for the second half.

Speaker Change #102: On the and this is I think what at this point is the projection that we have we have multiple variables ups and downs, but this is our view at this point.

Speaker Change #102: Yeah.

Enrique Lores: Cool, and just a quick follow-up is, have you guys... It's interesting, and if you have any thoughts yet, Enrique, on battery power, battery capacity, battery life over the next, you know, 36 months. As Gen AI PCs start to make their way into the world, the battery drain that comes, you know, with the use of Gen AI capability, any thoughts there on batteries?

Speaker Change #102: Cool.

Speaker Change #103: I'll follow up.

Speaker Change #104: Have you guys.

Speaker Change #105: And just interested if you had any thoughts yet.

Speaker Change #105: <unk>.

Speaker Change #105: On battery battery powered battery capacity battery life.

Speaker Change #105: Over the next yes.

This is 36 months as a journey ITC alright.

Speaker Change #105: You make your way into the world the battery Jane Mccahon.

Speaker Change #105: Maybe you should get the added capability.

Speaker Change #106: Any thoughts there on battery and that's it for me.

Enrique Lores: Sure. Let me make two comments.

Speaker Change #107: Yes, sure let me, let me make two comments first of all.

Speaker Change #108: In the next generation <unk> that we introduced a couple of weeks ago actually battery life is one of the key Differentiators in fact battery life is over 30 hours and this is driven by the fact that both we are using our technology in that disease, which is more efficient from a core.

Enrique Lores: First of all, in the next-generation AI PCs that we introduced a couple of weeks ago, battery life is actually one of the key differentiators. In fact, the battery life is over 30 hours, and this is driven by the fact that both we are using ARM technology in the PCs, which is more efficient from a cost perspective, but the enablers of AI PCs are that we are building large language models into our PCs that optimize the utilization of the PC based on how each user is going to be using it.

Speaker Change #108: Perspective, but also because one of the.

Speaker Change #108: Enablers of <unk> is that we are building in our rpc's prior to language models that optimize the utilization of the PC based on how each of US said he is going to be using that what this means is the PC will learn what applications are you seeing what applications, you have producing and how to optimize.

Enrique Lores: What this means is the PC will learn what applications we are using, what applications we are not using, and how to optimize consumption based on that. So it's really a personal device based on your own usage, which over time is also going to have a significant impact on battery savings, not only on ARM products but also on x86 products. It's one of the big differentiators of AI PCs. That's a lot of great features.

Rice consumption based on that.

Speaker Change #108: Personal device based on your own utilization, which overtime is also going to have a significant impact on battery savings not only on arm products, but also on X 86 products is one of the big Differentiators of <unk>.

Ananda Prosad Baruah: That's a lot of great contacts. Super helpful. Thanks, guys. Thanks, Enrique.

Speaker Change #109: That's a lot of great got it thanks, Steve.

Speaker Change #110: Thanks, guys. Thanks, Tim Mchugh.

Samik Chatterjee: The next question comes from Samik Chatterjee of J.P. Morgan.

Speaker Change #111: The next question comes from Sami.

Speaker Change #111: <unk>.

Speaker Change #112: With Jpmorgan.

Speaker Change #113: Please go ahead.

Speaker Change #114: Hi, Thanks for the questions I guess, if I can just start in <unk> you had in your prepared remarks, just in terms of the outlook or what are you seeing in the China market looks.

Samik Chatterjee: Just in terms of the outlook or what you're seeing in the Chinese market, it looks overall from the momentum perspective that overall demand is not strong in that market. We've seen some of the more, I guess, macro data come out a bit more positive in recent weeks. Anything more you can share in terms of how you're thinking about the geography of that particular region progressing through the rest of the year? Are things getting a bit better, or do you see further downside from where things are in terms of demand? Any more recent sort of commentary that you can see in terms of your order trends there? And I have a quick follow-up. Thank you.

Speaker Change #114: Overall from a momentum perspective.

Speaker Change #115: Overall demand is not strong in that market.

Speaker Change #116: We've seen some of the more I guess macro data come out a bit more positive in recent weeks any anything more you can share in terms of how you're thinking about the.

Speaker Change #117: Geography, you sort of fit that particular region are progressing through the rest of the yield.

Speaker Change #118: Things getting a bit better or do you see further downside from where things are in terms of demand any more recent wells.

The commentary that you can.

Speaker Change #119: In terms of your auto trends David and.

Speaker Change #120: A follow up thank you.

Enrique Lores: So, we didn't see an improvement in demand in the second quarter, not for print nor for personal systems, and we haven't built in any improvement in our projections for the second half. We think that the economic situation will continue to be challenged, and this is what we are building into our plan, and this applies to China. In other geographies, we are seeing great momentum, great progress, for example, in India, and it has been a very positive market for us in the last quarter.

Speaker Change #121: So we didn't see an improvement.

Speaker Change #122: <unk> demand in the us.

Speaker Change #123: Second quarter notes for cleaner for personal systems.

Speaker Change #124: And then we haven't built any improvement in our predictions for the second half we think that the economic situation will continue to be challenged and this is what we are building in our plan and this applies to China.

Speaker Change #124: Geographies, we are seeing great momentum great progress for example in India and this has been a very positive market for us in the last quarter.

Samik Chatterjee: And on the poly business specifically, I mean, overall demand trends are starting to improve. But when you think about sort of overall enterprises and their willingness to go back and spend on video collaboration again, what are you seeing in relation to sort of reengaging in terms of making that a priority in relation to their office space and investments in their office space? Thank you.

Speaker Change #125: Got it okay, great and on the volume, but specifically I mean, it seems like overall demand trends are starting to improve but when you think about sort of overall enterprises and their willingness to go back and spend on video collaboration again, what you're seeing in relation to sort of reengage.

Speaker Change #126: Engaging in terms of making that a priority in relation to the office piece and investments in their office space. Thank you.

Enrique Lores: Yeah, thank you. On the overall hybrid systems business, which is what we call it, we continue to see from one side that demand has been limited, and, as you said, enterprises have been limiting their investment. At the same time, quarter on quarter, we started to see some momentum, and we expect it to continue in the second half. And this was especially true for video conferencing systems. From a long-term perspective, we continue to believe that this is going to be a growth opportunity for us. We think that the flexibility that the hybrid work world brings is important for companies, and it's important for employees, and therefore, this opportunity is going to continue to be very real in the years to come.

Speaker Change #127: Yeah. Thank you on the overdone.

Speaker Change #128: <unk> business, which is how we call. It we continue to see from one side. The demand has been limited and as you said enterprises have been limiting the investment at the same time quarter on quarter, we started to see some momentum and we expect it to continue in the second half and this was especially true in video conferencing.

Speaker Change #127: Systems.

Speaker Change #127: From a long term perspective, we continue to believe that this is half that this is going to be a growth opportunity for us we've seen the flexibility that the hybrid work all means being is important for companies and it is important for employees and therefore this opportunity is going to continue to be.

Speaker Change #127: We are in the years to come.

Speaker Change #129: Alright, great. Thank you thanks for taking my question.

Samik Chatterjee: Thank you. Thanks for taking my questions.

Tony Sakanagi: The next question comes from Tony Sakanagi of Bernstein Research. Please go ahead.

Speaker Change #130: The next question comes from Tony <unk>.

With Bernstein research.

Speaker Change #131: Please go ahead.

Tony Sakanagi: Yes, thank you. I just had a couple of quick clarifications and then a question.

Speaker Change #132: Yes. Thank you.

Dave Shull: I just had a couple of quick clarifications and then a question just to clarify you sound very constructive on the recovery and PC.

Tony Sakanagi: Just to clarify, you sound very constructive on the recovery in PCs and, you know, some further tailwind from AI PCs. So I'm a little surprised you're actually guiding below normal seasonal for Q3. Can you explain why that is? And also, just on the buybacks, the buybacks are only $100 million this quarter, quite a bit lower than the first quarter. Again, could you just clarify?

Speaker Change #134: Some further tailwind from AIP C. So I'm, a little surprised you're actually guiding below normal seasonal for Q3 can you explain why that is and also just on the buybacks.

Speaker Change #134: The buybacks are only $100 million this quarter quite a bit lower than first quarter again could you just clarify I have a follow up please.

Enrique Lores: Let me take the question on PCs. We saw strength on the commercial side in Q2, and we are projecting that in the second half. At the same time, we're more cautious on the demand side for consumers, and we are also projecting that to continue in the second half. And this has some impact from a seasonality perspective, because as you know, consumers have a stronger seasonality in the second half, and this is why we're being a bit more conservative in our assumptions for the second half.

Speaker Change #135: Sure Let me let me take the question on <unk>.

Speaker Change #136: <unk>, we are we saw strength on the commercial side in Q2, and we are projecting that in the second half at the same time, we're more cautious on the demand side on consumer and we are also projecting that to continue in the second half and this is what has some impacts from a seasonality perspective, because as you know.

Speaker Change #136: From a seasonality perspective consumer has a stronger seasonality in the cycle.

Speaker Change #136: And this is why we're being a bit more conservative in our assumptions for the second half in.

Enrique Lores: In terms of share buybacks, probably the most important comment to make is that we have not changed our approach. Our goal continues to be to return 100% of free cash flow to investors unless we identify better ROI opportunities. And while our leverage stays below 2, an investor should expect that we will continue to return 100% of free cash flow over time.

Speaker Change #136: In terms of share buybacks clearly the most important comment to make is we have not changed our approach. Our goal continues to be to return 100% of free cash flow to investors.

Speaker Change #136: Unless we identify better ROI opportunities and widened our leverage stays below two and investors should expect that we will continue to return 100% of free cash flow over time.

Speaker Change #137: Okay. Thank you.

Speaker Change #137: If I zoom out.

Speaker Change #137: And just.

Speaker Change #137: Try and level set like I think revenue this year and last year for HP overall, it's going to be $53 54 billion pre.

Tony Sakanagi: Pre-COVID, for the past two years, it was about $58 billion. The PC market is going to be about the same level of units this year. I suppose the printing market is down a little bit. But why do you think revenues are still almost 10% below pre-COVID levels? And do you think, like, there actually should be some sort of snapback to pre-COVID levels? Or do you think there's been, you know, some share loss over the last few years? How do I reconcile those data points?

Speaker Change #138: Pre COVID-19 the two years it was about $58 billion. The PC market is going to be about the same level of units. This year I suppose the printing market is down a little bit, but but why do you think why do you think revenues are are still almost 10% below pre COVID-19 levels.

Speaker Change #138: And do you think.

Speaker Change #138: Like there actually should be some snap back to pre COVID-19 levels or do you think there has been.

Speaker Change #138: Some share loss.

Speaker Change #138: Over the last few years.

Speaker Change #139: How do I, how do I reconcile that those data points. Thank you.

Enrique Lores: Yes, I think we will have a more detailed conversation about 25 in the coming quarters and what the projections there are. I think you touched on some of the key points. The print market, both in print and in office, is smaller than it used to be, so this has an impact on size. Also, on PCs, even if, during the last quarter, we have been recovering share, we are still not at the level where we were before the pandemic, and our goal is to continue to grow share. So, there are multiple factors, and in Q4, when we talk about 25, we will give some kind of projections and what we expect to see versus 19 and previous years.

Enrique Lores: Thank you. Yes, I think we will have...

Speaker Change #140: I think we will have a more detailed conversation about 25.

Speaker Change #141: In the coming quarters, and what are the projections. There I think you touch on some of the key points the pre market. Both in print and office is smaller than it used to be so this has an impact on size.

Speaker Change #141: <unk>, even easier in the last quarter, we have been recovering share we are still not at the level, where we were before the pandemic and our goal is to continue to grow share. So there are multiple factors and in Q4, we will talk about 25, we will give kind of the project chimps and we do expect to see <unk> 19 on MTV.

Speaker Change #141: Yes.

Tony Sakanagi: Thank you. Thank you. I'm looking forward to seeing you tomorrow, Tony. Thank you. The next question comes from Asiya Merchant with, Please go ahead. Hey, good afternoon.

Speaker Change #142: Thank you. Thank you.

Speaker Change #143: And looking forward to see you tomorrow.

Thank you.

Speaker Change #144: The next question comes from <unk> merchant with.

Asiya Merchant: The next question comes from Asiya Merchant with City Group. Please go ahead. Hey, good afternoon. This is Michael.

Citigroup.

Speaker Change #145: Please go ahead.

Speaker Change #145: Hey, Good afternoon. This is Michael Cadiz for Ossianic Citi. Just one question I know you've given some good points on commercial versus consumer into second half.

Speaker Change #145: But through the lens of AIA Tcs as they gain traction starting in the back half.

You can you need those comments on commercial versus consumer and how we should look at that and see that VIP CBD.

Michael: Yes, I think the key thing, though, is that, especially for the next generation AI PCs, we expect a fairly small impact on the results of the second half. With the products, we will continue to expand the portfolio, but the impact in the second half is going to be fairly small. Of the products we just launched, we expect stronger traction in consumers because commercial requires some evaluation done by customers that takes some time, but over time, we expect the penetration in commercial to grow and to be more relevant in 2025 and in 2026.

Speaker Change #146: Yes, I think the key themes Oes.

Speaker Change #147: Especially on the next generation AIA Pcs, we expect pass fairly small impact in the results of the second half with the brothers the products were just launched.

Speaker Change #146: <unk>.

And we will continue to expand the portfolio, but the impact in the second half is going to be fairly small.

Speaker Change #146: The Peerless, we just launched we expect.

Speaker Change #146: Stronger traction in consumer because commercial required some evaluation done by customers that take some time, but overtime, we expect our penetration in commercial to grow and to be more relevant in 'twenty five 'twenty six.

Speaker Change #148: Excellent. Thank you. Thank you.

Enrique Lores: Your next question comes from the line of Krish Sankar with T.D. Cowan. Please go ahead.

Speaker Change #149: Your next question comes from the line of Chris <unk> with TD Cohen.

Speaker Change #150: Please go ahead.

Krish Sankar: Hi, this is Stephen calling on behalf of Krish. Thanks for taking my questions. The first one, if I could, I guess, Enrique, could you talk about what percentage of your revenues today are coming from subscription-based revenues, whether it's related or also the newer all-in programs? And do you have a longer-term view on what that mix could be for next year? And are you also willing to quantify what the operating margins might be for the subscription-based revenues versus what you normally sell through the retail and distribution channels?

Steven: Yes, Hi, this is Steven calling on behalf of Krish. Thanks for taking my questions. The first one if I could.

Speaker Change #152: I guess, maybe could you talk about what.

What percentage of your revenues today are coming from such subscription based revenues.

Speaker Change #152: Whether it's related also to newer all in programs.

Speaker Change #152: Kind of do you have like a longer term.

Speaker Change #152: You on what that mix could be for next year and are you also willing to quantify what the operating margins might be for subscription based revenues.

Speaker Change #153: Normally shelton talent distribution channels.

Enrique Lores: Sure. We don't disclose the specific numbers of our subscription business, but let me make a few qualitative comments. First of all, in Q2, we continue to see growth both of net subscribers and also of revenue in the consumer services space that integrates all the subscription models. During the last quarter, we have been expanding our portfolio to first paper and, in Q2, to also include the printer in what we call the all-in model, and we keep making good progress in the three subscription programs that we have at this point.

Speaker Change #153: Sure.

Speaker Change #154: We don't disclose our specific members of our subscription business, but let me let me make a few qualitative comments first of all in Q2, we continue to see growth both off net subscribers and also revenue in the consumer services space that integrates all their subscription models during the.

Speaker Change #154: Last quarter, we have been expanding our portfolio to first paper and then in Q2 to also include a pre entering what we call the only model and we keep making good progress in the three subscription programs that we have at this point. Our goal is of course to continue to grow this business.

Enrique Lores: Our goal is, of course, to continue to grow this business because it enables us to offer a better value proposition to our customers, but also because it allows us to capture more value per customer as the value proposition is stronger, and you can approach that to the profit that we get from customers. So, we really think of this as a way of building a more accretive business.

Speaker Change #154: Cause both enables us to offer a better value proposition to our customers.

Also because it allows us to capture more value per customer or the value per pushing proposition in stronger and Yukon approaches to profit that we get from customers.

Speaker Change #154: We really think this is a way of building a more accretive business.

Stephen: Great, thank you for that. And as a follow-up question, maybe for Tim, I had a question on the balance sheet, and specifically inventory as well. I was wondering if there was a major structural change that is going on in terms of inventory dollar levels. If I look at your current revenue run rate and also the current inventory levels, I would have to say that compared to pre-pandemic levels in Fiscal 17, where revenue levels were similar to today, your inventory levels are much higher in terms of dollars.

Speaker Change #155: Great. Thank you for that and as my follow up question, maybe for Tim I had a question on the balance sheet and specifically.

Speaker Change #156: As well I was wondering if theres any.

Speaker Change #157: Major structural change that.

Speaker Change #158: That is going on in terms of inventory levels.

Speaker Change #159: If I look at let me run rate.

Also our inventory.

Speaker Change #159: Inventory levels.

Speaker Change #159: And comparing to pre pandemic levels.

Speaker Change #159: Fiscal 2017.

Speaker Change #159: Let me close with so much it today.

Speaker Change #160: Inventory levels are much higher in terms of dollars just kind of wondering is this all just due to that.

Stephen: I'm just kind of wondering, is this all just due to, you know, buy-aheads or strategic buys, or is there also some element of changing your current business mix, whether it's a higher commercial PC mix and also the shift to more subscription model-based revenue?

Speaker Change #161: The buyer has a strategic buys.

Speaker Change #161: There also some element of that changing.

Speaker Change #161: Our business mix, whether it's higher commercial PC mix and also.

Speaker Change #161: Shifting to more subscription based revenues.

Speaker Change #162: The bigger impact on how much inventory you have to meeting thank you.

Timothy J. Brown: Yeah, first on the subscription comment, no, that doesn't impact the inventory levels that we're taking. Then, from a structural standpoint, we haven't changed our structural inventory meaningfully. Most of what you see is related to strategic buys and sea shipments as we choose to put those on the ocean. And that has, and will change over time, at times. So, there's nothing more than those two things. And what I would say is, as I said before, partially offsetting some of those decisions we make, we are continuing to actually improve our operational inventory to help fund those other items.

Speaker Change #163: Firsthand the subscription comment no that doesn't impact the inventory levels that were taken.

Speaker Change #162: Taking.

Speaker Change #164: From a structural standpoint, we haven't changed our structural inventory meaningfully most of what you see is related to strategic buys and sea shipments.

Speaker Change #162: As we choose to put those on the ocean.

Speaker Change #162: That has that will change over time.

Speaker Change #162: At times, so there is nothing more than those two things.

And what I would say.

The only thing I would add is what I said before is now partially offsetting some of the decisions. We make we are continuing to actually improve our operational inventory.

To help fund those other items.

Enrique Lores: Thank you, everybody, for joining the call. As you saw, Q2 was a solid quarter that closed a solid first half of the year. And the most relevant thing is the recovery that we saw in PCs, especially in commercial PCs, which makes us positive about the second half, where we expect a stronger second half than what we have seen in the first half. And the combination of the progress on the execution side and the growth that we continue to experience in what we call the growth businesses gives us confidence in our ability to continue to create value long-term. So thank you again, everybody, for joining us and I Thank you.

Thank you. So let me. Thank you everybody for joining the call I have you. So Q2 was a solid quarter that closures a solid first half of the year.

Speaker Change #162: And the most relevant thing is the recovery that we saw in PC, especially in commercial Pcs, which makes our mix has been positive about the second half we expect a stronger second half than what we have seen in the first half.

And the combination of the progress on the execution side and the growth that we continue to experience in the what we call the growth businesses gives us confidence in our ability to continue to create value long term. So thank you again, everybody for joining and looking forward to see many of you in the coming weeks. Thank you.

Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining us. You may now disconnect.

Speaker Change #165: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Speaker Change #165: Yeah.

Speaker Change #165: Okay.

Speaker Change #165:

Speaker Change #165: Yeah.

Yeah.

Yeah.

Speaker Change #165: Okay.

Speaker Change #165: