HP’s stock falls after management tempers full-year expectations amid soaring memory costs

Personal computer maker HP Inc. delivered solid fiscal first-quarter results that came in ahead of expectations today, but its stock was dropping in late trading after it provided a disappointing update on its full-year outlook.

The company reported first-quarter earnings before certain costs such as stock compensation of 81 cents per share on sales of $14.44 billion, up 7% from a year earlier. Wall Street had been looking for earnings of 77 cents on sales of $13.94 billion.

However, the growth wasn’t enough to spark a profit increase. HP delivered net income of $545 million in the quarter, down from a $565 million profit in the year-ago quarter.

Looking forward, HP reiterated its full-year earnings guidance of between $2.90 and $3.20 per share, but Chief Financial Officer Karen Parkhill said on a conference call that the company now expects its results to be closer to the low end of that range than before. She said that’s because of the rising cost of memory chips, which are essential components in its computers.

HP’s stock fell more than 6% in late trading. Through market close, the stock is now down 18% in the year to date, and 48% over the last 12 months.

HP and other hardware makers have been struggling with the rapidly rising cost of memory, which is now in short supply thanks to surging demand from artificial intelligence data centers. With supplies low, prices of the chips have increased dramatically in the last few months. For the current fiscal quarter, HP said, it’s assuming that memory prices will be roughly double what they were in the previous quarter.

To offset these increased costs, HP has said it will raise the prices of its computers and try to find lower-cost suppliers. In addition, it’s also looking at reducing the memory configurations of some of its PCs. Parkhill told analysts that the company is laser-focused on its mitigation plans. “We are well-practiced at managing through headwinds,” she insisted.

For the current quarter, HP said it’s looking for earnings of between 70 and 76 cents per share. The midpoint of that range is just below the Street’s target of 74 cents.

HP said its personal systems revenue increased 11% in the prior quarter, to $10.3 billion, surpassing the Street’s estimate of $9.8 billion. Printing revenue came to $4.2 billion, down 2% from a year ago, but ahead of the $4.1 billion consensus estimate. Parkhill said the company’s profit was lower despite the increased revenue because of the combination of higher memory prices and also tariffs. It has moved manufacturing away from countries where the tariffs are highest, but she said doing so incurred significant costs for the company.

Shareholders may also have lingering concerns about HP’s sudden leadership transition. Chief Executive Enrique Lores abruptly stepped down from the role Feb. 3 to take over as CEO of PayPal Holdings Inc. He has been replaced temporarily by interim CEO Bruce Broussard, who has served on HP’s board since 2021.

Broussard said the board has been busy searching for the ideal candidate to lead the company going forward. “We will consider a broad range of candidates, with a preference for proven executives who have successfully operated large multi-segment businesses in a complex and dynamic environment,” he said on the conference call.

Because of the sudden transition, HP has decided to postpone its annual investor day, which was originally slated to take place in April. He did not announce a new date for the event.

Whoever takes over as HP’s new CEO will have a lot to contend with. In addition to the memory shortages, the company is in the midst of a transition of sorts. In November, it revealed plans to cut up to 10% of its workforce, as it pushes to adopt more AI tools. The company said at the time it aims to use AI to accelerate product and software development and automate customer support operations and some other internal processes.

Photo: HP