HP INC (HPQ) Q2 2026 Earnings Call Transcript

Good day, everyone, and welcome to the Second Quarter 26 HP Inc. Earnings Conference Call. My name is Krista, and I will be your conference moderator for today's call. At this time, all participants will be in a 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 0. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Alok Juyal, Global Treasurer and Head of Investor Relations. Please go ahead.

Good afternoon, everyone. And welcome to HP's Second Quarter 26 Earnings Conference Call. With me today are Bruce Dale Broussard, HP's interim chief executive officer, and Karen L. Parkhill, HP's chief financial officer. Before handing the call over to Bruce, 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. We posted the earnings release and accompanying slide presentation on our investor relations web page 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 business 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 forward looking statements.

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. 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 and market share references are based on calendar quarter information. Unless otherwise specified, all financial measures discussed today are non-GAAP and EPS refers to non-GAAP diluted net earnings per share. Please refer to the tables in today's earnings release and the accompanying slide presentation on our website for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. With that, I will now turn the call over to Bruce.

Thank you, Alok, and thanks everyone for joining us today. I want to start by saying how much I appreciate the opportunity to lead during this important time for the company. Through the efforts of our team around the world, we continue to advance our future of work strategy and help our customers navigate one of the most significant technology shifts ever due to AI. I want to recognize and thank the entire HP team for the focus, discipline, and agility they demonstrate every day. As interim CEO, I have spent significant time with customers, partners, and employees. What I have seen is an organization that is moving with speed, focus, and urgency to strengthen our market position and accelerate innovation that benefits our customers. This is translating into strong results in a complex operating environment. Our second quarter performance underscores both the resilience of the business today and the opportunities we see ahead.

Today, I will share the innovations we are bringing to market across our portfolio, the results we delivered this quarter as well as how we are planning for the environment ahead. But first, let me address one topic I know is top of mind. The CEO search. As a reminder, the board established a search committee and engaged an external search firm. We are looking for a leader with the following attributes. First, a proven track record of creating long term value for customers and shareholders. Second, the ability to operate effectively in complex and rapidly changing environments, like many companies are navigating today. Lastly, global and multi-segment business experience. We are engaged in a comprehensive process to select the best leader for HP. While we are not in a position to provide a timeline, the board is actively evaluating candidates who align with HP's needs. Turning to innovation.

Let me share how we are bringing our strategy to life across the company. As work evolves, organizations face critical decisions about their IT infrastructure and employees are adapting to new ways of working, especially in the age of AI. AI innovation is accelerating, and adoption is growing rapidly across enterprises. Customers are becoming more thoughtful about where AI workflows run. AI is transforming computing from passive devices to context-aware intelligence systems. Companies like HP that own the trusted edge, the workflow context, and the orchestration layer between local and cloud intelligence will be positioned to thrive in this environment. Rising cloud costs associated with generative AI, along with latency, privacy, and security considerations are driving demand for AI workloads at the edge. As a result, customers are building AI at the edge using smaller, open source, and proprietary models with more capable hardware and secure software.

HP is enabling the future of work by providing the essential tools and technology necessary for this transformation. Our devices and software stack support the shift with strong architectural capabilities for edge inferencing and new AI workloads. We are becoming the trusted intelligent edge provider connecting devices, workflows, context, and physical environment. We continue to believe the future of AI is hybrid with edge playing an increasingly important role over time. Building on this opportunity, we recently unveiled a wave of innovation across our portfolio and with more than 150 software partners of all sizes. Previously, we highlighted our collaboration with partners like Zoom and CrowdStrike. Today, I want to showcase other software partners. GoodNotes, for example, is leveraging the NPU for local audio transcription and summarization, while AI producer is transforming our AIPCs into professional production studios.

These are just a few examples of how we are enhancing productivity, output, and workflow experience for our customers. To bring data center capabilities directly to the desktop and to support the most demanding AI and compute workloads, we introduced new Z workstations and AI stations. These purpose-built devices enable customers to develop, run, infer, and scale AI workloads, providing greater control over token costs, latency, and enterprise data security. In print, we launched a new LaserJet series with AI-enabled document workflows, quantum-resistant security, and up to 50% faster document handling making work easier and more secure. We are also extending innovation into areas like construction and design, connecting physical and digital workflows to help teams stay aligned from the office to the job site. Also this quarter, we introduced the HP Multi Jet Fusion 1.2 thousand, bringing industrial 3D printing capabilities into a more compact accessible system designed to help customers move from prototyping to production closer to where work happens.

We are also creating better together experiences across our portfolio with the introduction of HP IQ. This is a groundbreaking intelligence layer that coordinates seamless integrated experiences across all our products. A key feature is HP Near Sense, a new spatial intelligence that helps devices easily discover and connect to each other. The goal is to make tasks like file sharing, joining meetings, and moving between environments feel more intuitive and effortless. As work becomes more connected yet distributed, IT teams need simpler ways to manage, secure, and optimize environments. That is why we have enhanced our Workforce Experience Platform, known as WXP, with AI-driven tools for proactive management of personal endpoints and shared spaces. WXP actively manages over 5.2 million devices across 180 countries. These innovations represent our commitment to creating more connected experiences across devices, software, services, and security.

They reflect our one HP approach in action, which we believe positions us well to create more value for our customers and partners. We are seeing strong customer interest in these new innovations, which underscores our approach and a growing customer demand for our solutions. Let me turn to our quarterly results. In February, I said our focus would be on prudent execution, taking the right cost action, and continuing to advance our future of work strategy. I am pleased to report we delivered against those commitments in Q2. Revenue grew 9% year over year, marking the eighth consecutive quarter of top line growth, led by strong personal systems performance. While print results were in line with expectations, importantly, the quarter reflected not just growth, but disciplined execution. We continue to grow in high value categories, and accelerate our mitigation strategy to manage commodity cost pressures which allowed us to deliver EPS above our guidance.

Let me turn to segment performance. In Personal Systems, revenue grew 13% year-over-year with strong growth in both commercial and consumer. This includes continued momentum in AIPCs, which increased from more than 35% to 44% of our shipment mix in the quarter, as well as continued strength in advanced compute solutions and workforce solutions. In Print, revenue was flat year over year in a competitive market as expected. We remain focused on pricing discipline and placement of profitable units, and gaining share in big tank printers in line with our strategy. Industrial Graphics delivered its eleventh straight quarter of revenue growth with momentum in hardware, supplies, and services. Turning to the external environment, we continue to navigate a challenging supply and cost environment while remaining focused on disciplined execution. In Q2, as anticipated, memory and storage cost increased sequentially.

We expect this trend to continue in the second half of 26 with cost increasing in Q3 and Q4. Our strong execution of the mitigation strategies we outlined in February has strengthened our ability to navigate future headwinds. Let me walk through the strong progress we have made in our four-pillar plan. First, through our strong supplier relationships and long-term agreements, we are confident we have the memory and storage that we need for this fiscal year. Second, we fully operationalized a planning model that tightly aligns supply, demand, and product configuration decisions. This gives us greater flexibility to respond in real time and better positions the right products in the right markets to meet customer demand. Third, our strategic inventory helped us remain cost competitive and maintain supply continuity. We continue enrolling new suppliers, taking strategic inventory positions, strengthening our operational muscle through demand steering activities, and expanding our attached businesses.

Lastly, we remain disciplined on both pricing and cost. We executed a differentiated repricing strategy, prioritizing strategic customers, distributors, and countries. We also executed across multiple cost levers including sourcing optimization, platform cost reduction, and company-wide productivity actions to help offset ongoing pressures while continuing to invest in the business. Looking ahead, we expect the memory and storage environment to remain constrained. In addition, we also anticipate broader inflationary pressures beyond memory and storage, including oil prices and their downstream effects. To help mitigate these headwinds, we will continue to leverage the operational capabilities and discipline we strengthened in Q2. We remain focused on driving long term growth by leveraging our strong portfolio, go-to-market reach, supplier relationships, and innovation pipeline. In closing, we are confident in our future of work strategy and the significant opportunity ahead as AI continues moving to the edge. We believe our continued focus on innovation and disciplined execution positions us well to drive sustainable growth and long term shareholder value. With that, I will turn it over to Karen.

Thank you, Bruce, and good afternoon, everyone. We are pleased with our second quarter results and the progress we have made against our financial commitments for the year. We delivered solid top line growth, driven by continued strength in Personal Systems and momentum in our key growth areas. And through disciplined execution and an emphasis on what we can control, we also delivered EPS above our guidance range. Our results reflect the progress we have made on executing to the playbook we laid out at the beginning of the year to mitigate higher input costs. We took deliberate actions to lower our memory cost by accelerating product reconfiguration and qualifying lower cost components. We optimized the use of lower cost inventory on hand, while shaping demand to higher margin units. And lastly, we took action to reprice for commodity increases. Together, these actions had a meaningful impact on our operating profit in the quarter, enabling us to deliver results above expectations.

Now let me walk you through more details on our second quarter performance. We delivered 9% revenue growth year over year, or 6% in constant currency. By geography, the continued Windows 11 refresh cycle in APJ and EMEA helped to drive strong performance as expected. With constant currency revenue in APJ up 18%, EMEA up 6%, and Americas flat. Gross margin was 20.9%, up year over year, driven by favorable pricing and contributions from key growth areas, partly offset by higher commodity costs and increased mix from Personal Systems. Operating expenses as a percent of revenue remained flat year over year, with continued investment in innovation, product promotion, and people, offset in part by disciplined cost management. All in, our operating margin was 7.5%, up 20 basis points year over year. Below operating profit, lower financing costs contributed to better than expected other income and expense in the quarter.

And with a diluted share count of approximately 925 million shares, our net earnings per share was $0.86, up over 20% year-over-year. Now let's turn to segment performance. We delivered 13% top-line growth in Personal Systems, reflecting prioritization of higher value unit placements, continued services expansion, and disciplined pricing, partly offset by lower volumes. Consistent with our strategy, we gained share in the premium PC categories. We also drove strong performance in key growth areas, with double-digit year over year revenue growth in AIPCs, advanced compute solutions, and workforce solutions. We also delivered double-digit revenue growth year over year for both consumer, up 10%, and commercial, up 14%, driven by repricing actions to cover commodity headwinds and favorable mix. As expected, commercial showed above-seasonal sequential performance, which we attribute in part to some demand pull ahead of rising commodity prices.

All in, we drove Personal Systems operating profit growth of 30% year-over-year, with operating margins at 5.2%, above expectations and due to the accelerated mitigation actions we took to offset higher input costs. Print revenue was flat year over year as expected, with hardware volume declines offset by favorable pricing and currency. Momentum in key growth areas continued, with double-digit revenue growth in consumer subscription, including an increase in subscribers to our All-In Plan. Industrial print delivered another solid quarter, with year over year revenue growth across all regions. We also drove double-digit growth in 3D printing for the fifth straight quarter. By customer segment, consumer revenue declined 10% year-over-year due to lower traditional printer volume in what continues to be a competitive pricing environment. Aligned with our strategy, we delivered double-digit unit growth in tank printers, gaining share both year over year and sequentially.

Commercial revenue was flat year over year, with higher ASPs helping to offset lower volume. We saw continued improvement in the office market and drove share gains sequentially across all A4 office categories. Supplies was flat year over year in constant currency, with pricing and share gains offsetting headwinds from installed base and usage. We delivered an operating margin of 0.3%, down year over year as expected, with higher trade-related costs and promotional investment, particularly in big tanks, partly offset by pricing. Across HP, we continue to advance our AI-enabled transformation, including modernizing our software development and delivery capabilities. We are consolidating platforms, simplifying applications, and using AI to boost developer productivity, speed innovation, and deliver better customer experiences faster. And we are also scaling similar initiatives across the company, including in our supply chain, go-to-market, and customer support organizations.

We remain on track to generate $1 billion in gross annualized run-rate savings by the end of fiscal year 28. As part of our efforts, we announced a voluntary early retirement plan in the quarter, and the expenses associated with that plan are included in our Q2 restructuring charges. Our cost saving efforts remain an important lever to help offset macro headwinds while continuing to fuel investment in key strategic and go-to-market initiatives. Now let me move to cash flow and capital allocation. We generated over $900 million in cash from operations, and roughly $800 million in free cash flow in the quarter, above our expectations on the strength of Personal Systems performance. And we returned nearly $400 million to shareholders through dividends and share repurchase and finished the quarter within our target leverage ratio. We remain committed to returning approximately 100% of our free cash flow to shareholders over time as long as our gross leverage remains under 2x and there are not better return opportunities.

Looking ahead to the second half of the year, we expect to continue to drive revenue growth. And as Bruce mentioned, we also expect rising input costs to put increasing pressure on our operating margins, particularly in Personal Systems. So we are taking a prudent approach to our outlook. That said, we have a strong track record of navigating near-term headwinds and we will remain focused on building on our Q2 momentum. By segment, in Personal Systems, we remain aligned with industry experts projecting the PC unit TAM to decline at a rate in the high teens for the second half of the calendar year. Against this market backdrop, we continue to expect revenue growth in our fiscal year, driven by pricing actions, share gains in premium categories, and increased attach of higher margin offerings. We expect below-seasonal revenue performance for Q3, given first-half demand pull forward ahead of commodity price increases.

And as signaled, we expect input costs to continue to increase through the back half. Given that, along with a decreasing benefit from the lower cost inventory on hand, we continue to expect Personal Systems operating margin rate to be below our long-term range for the remainder of the year. In Print, we are aligned with industry experts anticipating a low single digit decline in the hardware market in the second half of the calendar year. We are executing our plans to gain additional share in both tank printers through portfolio extensions and targeted promotions and in office as we fully roll out our latest AI-enabled laser portfolio. We also expect sustained momentum in key growth areas by expanding subscribers to our All-In Plan and driving growth in industrial. And while we continue to project supplies revenue will be down low single digit for the year in constant currency, we expect to drive both pricing and share gains.

For Q3, we expect print revenue generally in line with normal seasonality and we expect operating margins near the lower end of our long-term range, reflecting typical seasonality, incremental hardware unit placement, and near term input cost pressures which we are actively working to mitigate. That said, for the full year, we expect operating margins solidly in the range. Beyond the segments, we continue to expect OI&E to be $500 million for the year and corporate other expense to be slightly under $1 billion. In summary, with two solid quarters behind us, we are strengthening our outlook for the fiscal year. As you recall, last quarter, we signaled that earnings per share could be closer to the lower end of our guidance range. However, with the meaningful progress we have made against our mitigation playbook, we are now more confident in our ability to deliver higher EPS this fiscal year.

As such, we now expect diluted net earnings per share to be in the range of $2.90 to $3.10. For Q3, we expect diluted net earnings per share to be in the range of $0.61 to $0.71. Lastly, given our expectations for improved earnings performance, we expect our annual free cash flow to be solidly in the range of $2.8 billion to $3 billion. In closing, we are pleased with our first half performance and progress we are making against our strategic and financial priorities. While we expect the external environment to remain dynamic in the back half of the year, we are focused on disciplined execution, accelerating our mitigation actions, and continued investment in innovation and growth to drive long term value. As we turn to Q&A, given the current dynamics in our PC business, we have invited Ketan Patel, who leads Personal Systems, to join us similar to last quarter. So with that, I would like to hand it back to the operator and open the call for your questions.

Thank you. And we will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. Our first questioner today will be Samik Chatterjee with JPMorgan. Please go ahead.

Hi. Thanks for taking my question. Maybe for the first one: pretty strong margin performance in the Personal Systems segment. I know you are talking about that moderating as you go into the back half with memory costs continuing to go up. Maybe if you can talk about the offsets in the back half. You have talked about cost decreases or moderation of cost that you worked on as well as price increases as you look to offset some of the memory cost increase in the back half. Do you have more room to go on the cost reduction? Or is the back half more dictated by price increases that you potentially need to take? I have a follow-up as well. Thank you.

Thanks for the question, Samik. We continue to expect input costs to rise in the back half and we also have the reducing benefit of lower cost inventory from our strategic inventory positions that we had this past quarter. So we do expect our operating margins to be below our long-term range for the balance of the year. But that said, we are actively executing our mitigation actions, and if those actions prove more effective or the environment improves, there could be some upside. I would note, though, that based on what we are seeing today, we would expect Q4 to be a low point, followed by sequential improvement into next fiscal year. We are, of course, continuing to drive cost reduction that will continue to benefit us in the back half and into FY 2027.

Got it. Great. And maybe on Print, you mentioned the increasing input cost on that front as well, I think resins. Is the playbook there in terms of margin resilience similar to what you have executed in Personal Systems, or are you thinking about it in terms of how to pass some of those cost increases to customers? Thank you.

Our playbook is very similar to what we executed in Q2, and we are going to continue to drive that in the back half of the year and beyond.

And just to add, a reminder on Personal Systems: the mitigation strategy was around leveraging our strong supply chain scale, our ability to have the right level of silicon diversity, and strong supplier relationships. We demonstrated that in Q2. The other element is about driving cost actions across other commodity baskets as well as overall design and cost initiatives. And lastly is our demand shaping to optimize platforms and configurations.

Your next question is going to come from the line of Amit Daryanani with Evercore. Please go ahead.

Good afternoon, everyone. Thanks for taking my question. I guess maybe the first one to start with: could you just help us frame or help us think about the size or the extent to which the full-year commercial strength that we saw on the Personal Systems side benefits from pull-forward dynamics versus what you think is a more durable underlying demand given the fact you do have a Windows refresh and AI PC transition? I'd love to just understand the commercial PC side: how much of the strength you saw was pull-forward versus underlying trends.

Thanks for the question, Amit. We were pleased with the double-digit growth we delivered in both consumer and commercial Personal Systems, and that was supported by disciplined pricing along with a richer mix and continued services expansion. There was some pull-forward in commercial Personal Systems, and we estimate that added roughly 2% to 3% of revenue.

That is super helpful. And then as a follow-up: if I think about the back half guide, the EPS run rate, I think, is around $0.65 to $0.70 a quarter. Is that the right baseline for us to think about as we think about fiscal '27? Such that you actually imply EPS in the $2.70 to $2.80 range for fiscal 2027? Or are there vectors of things that you can execute on to ensure that there is EPS growth in fiscal '27 versus the 2026 guide? I know it's a bit early, but any insights would be appreciated.

Thanks, Amit. We are still in our planning process; it is too early to give guidance for next fiscal year. But I would note that with the increasing cost of memory in Q3 and Q4, we do expect our Q4 Personal Systems margins to reach a trough or a low point in Q4, and we do expect sequential improvement in those margins as we move ahead from there.

Your next question comes from the line of Erik Woodring with Morgan Stanley. Please go ahead.

Hey, thanks. Can you maybe build a bit on how you are thinking about demand elasticity in the second half of the year and into 2027, given the higher pricing environment and the evolution of the Windows 11 upgrades? As you sit here today, how do you think about visibility into two, three, four quarters out, and how that impacts demand elasticity? And a quick follow-up as well. Thank you.

Thanks, Erik. We did say that we are aligned with industry experts that we expect unit TAM to be down high teens in the second half. That is given the rising price environment along with the slight pull-forward we had in Q2. So we do expect unit demand to be down, but we expect revenue to be offset by increased prices, increased mix to premium, and higher attach of higher-margin offerings. Ketan, I will let you add anything here.

On top of that, we believe there is intrinsic strength in demand in both commercial and consumer businesses driven by two factors. First, the Windows 11 refresh—approximately 30% of the installed base still to be refreshed. That is a tailwind in the short run. Second, as customers move workloads to the edge with rising costs of generative AI, that is a structural opportunity for AI and edge. That will help us drive better mix and share gains, particularly in premium categories, and that is where we expect commercial demand to remain strong because of these two factors.

Thank you for that color. Quick follow-up: OpEx was up 9% year-over-year in the quarter. Can you provide more detail on what drove that and how sustainable it is into the second half?

Thanks for the question. Our OpEx was flat as a percent of revenue year over year as we expected. We continue to invest in innovation and product promotion, particularly in our big tank units, and also in our people, while maintaining cost discipline. As we look ahead, we expect OpEx to be roughly flat as a percentage of revenue. We are driving cost savings that enable us to continue to invest in AI and innovation and help offset macro headwinds, but we expect OpEx to be roughly flat as a percent of revenue going forward.

Your next question comes from the line of David Voigt with UBS. Please go ahead.

Hey, thanks for taking the question. This is Brian on for David. Regarding memory sources and allocation: can you speak to the ability to access new or incremental sources to offset the pricing pressures you are seeing? And I have a quick follow-up. Thank you.

We have secured the memory and storage we need for the fiscal year through strong supplier relationships and long-term agreements. On top of that, we have fully operationalized our supply-and-demand planning model that aligns demand, supply, and configuration decisions in real time. Our strategic inventory position helped us remain cost competitive while we remain disciplined on pricing and cost, executing a differentiated repricing and multiple cost actions across sourcing, platforms, and productivity. The speed of recovery differs by customer segment, geography, and channel type, but balancing mix to maximize meeting customer expectations and cost recovery will continue to be our focus.

Got it. That is helpful. My second question is on Print: are you seeing any demand spillover from PCs into print hardware and supplies? Are you seeing a correlation between higher PC pricing and customers spending less on other hardware related products? Thank you.

On Print right now, we continue to see a competitive environment and enterprises are prioritizing PC investments ahead of print. But over time, we expect that to improve. In fact, we are seeing less decline in office print over the last three quarters, which is a good sign, and print usage trends remain pretty strong.

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

Yes. Thank you. Supplies revenue was flat in constant currency, which is a lot higher than your long-term expectations. Was there any impact from a channel inventory step-up, or is this purely related to the mix of higher hardware in the quarter? Can you help us think through what drove that better supplies trajectory and how it might play out through the year? I have a follow-up as well.

Thanks, Wamsi. Our channel inventories remain in line and healthy. Supplies revenue being flat year over year in constant currency was a bit better than we expected for the year and was driven by pricing we implemented to help offset trade-related headwinds as well as share gains. That helped offset headwinds from a lower installed base. That said, we are not changing our expectations for supplies revenue to decline low single digit in constant currency this fiscal year, and we expect supplies to continue to decline low to mid single digits over the long term. We are focused on managing this trend by continuing to drive market share, deliver growth in subscriptions and industrial and 3D, which are our key growth areas, and maintaining strong margins.

Okay. Thanks, Karen. On print margins, you called out factors impacting Q3 margins to be at the low end of the print margin range. Should we expect the usual bounce back in Q4, or will commodity price increases like resin create a different dynamic going into Q4? And in your guidance, are you expecting any tariff refunds? If so, could you quantify those, please? Thank you.

As we look at the back half of the year, we expect Q3 operating margins to be near the lower end of our long-term range, reflecting not just typical seasonality but also incremental hardware unit placement and some pressure from increased oil-related commodities and transportation costs. That said, we do expect improvement in Q4 and we expect print margins to be solidly in the range for the full fiscal year. On tariffs, we are monitoring the government refund process, which continues to evolve, but currently the government is not processing refunds for complex multinational companies like us. When we are able, we will apply for refunds, but at this stage, it does not apply to us.

Your next question comes from the line of Asiya Merchant with Citi. Please go ahead.

Hey, good afternoon. This is Mike Cadiz for Asiya Merchant at Citi. My question: can you give any color on performance by geography and why it was perhaps more disparate, with acceleration mainly from APJ? Any elasticity there and other factors we should consider? Thank you.

Thanks, Mike. We saw good growth in both EMEA and APJ this quarter, and some of that was driven by expected tailwinds from Windows 11. At this point, roughly 30% of the installed base is still on Windows 10, so there is still more to go. The growth we saw in EMEA and APJ reflects that. The Windows 11 refresh in EMEA and APJ is now on par with North America.

I will just add that Europe and APJ growth was mainly because of Windows 11 timing. Americas went earlier in 2025, so you see that difference between geographies. But across the three geographies, you see structural demand coming from AI PCs and premium PCs largely because of AI and the edge, which I called out before. That remains strong even for Q3 and Q4.

Your next question is going to come from the line of Ananda Baruah with Loop Capital. Please go ahead.

Thanks. Quick question: you mentioned memory is procured through fiscal '26. What is the best way to think about how you are feeling about fiscal '27 since it begins not so long from now? Thanks.

The way you saw our approach in 2026 of securing memory, storage, and even CPUs through the fiscal year via strong supplier relationships and long-term agreements is the same process we will continue to apply for 2027 and beyond. We will continue to qualify new suppliers as we see opportunities; we have already qualified a lot of suppliers this year and are accelerating qualification processes to ensure the right level of quality checks across our portfolio. That effort will continue to secure supply for next year. It is always a moving piece, but we have been confident as you have seen in our 2026 situation, and that same playbook will apply moving forward.

Your next question comes from the line of Katherine Murphy with Goldman Sachs. Please go ahead.

I was wondering if you could help frame how big resin may be in the bill of materials for printing hardware, and if there is any consideration for supplies across ink and toner. And then as a quick follow-up, is there any consideration for higher resin prices across the PC and peripheral category as well? Thank you.

Thanks, Katherine. We are seeing rising costs for resin based on the current oil situation. That said, it is not significant for us and it is built into our outlook. We are not going to quantify what it is as a percent of the bill of materials, but we believe it is manageable.

Your next question comes from the line of Krish Sankar with TD Cowen. Please go ahead.

Hi. Thanks for taking my questions. First: on component supply as it pertains to processors, with the strength in data center server CPUs, any potential ripple effects on CPU supply for your procurement in the second half of the year, especially across the different SKUs that you are focusing on?

We have the required CPU supply we need. We have known about small-core constraints since the beginning of the year and have been working to secure the supply we need. With our shift toward higher-end mix, that supply mitigation is already part of our Q2 execution and beyond. We manage price increases across our entire commodity basket, including CPU pricing. Our silicon diversity helps us work across multiple CPU suppliers, which benefits us in securing both supply and pricing.

Thanks. Quick follow-up: can you provide more commentary or anecdotes related to agentic AI for client and edge compute? Are the comments specifically focused on companies with large software developer bases, or is it a common anecdote from customers debating between purchasing hardware that can run open-source agents versus a subscription model like Copilot or other frontier models?

There is a real shift happening toward AI and the edge, with workloads moving for reasons Bruce mentioned earlier: latency, privacy, sovereign AI, and cost. The PC is becoming strategically relevant and HP has capabilities and proof points to shape how AI shows up at the edge. We are innovating on AI execution platforms, starting with how systems are designed for AI workloads, such as workstations capable of running models locally. We demonstrated this through product innovations at our Edge events, including HP IQ and our security solutions which predict and protect at device levels. This is a great opportunity, and our partnerships with over 150 software partners working on productivity, developer, and creative use cases for local workloads are helping.

Steven, I would also add that our AIPC mix shipped this quarter increased substantially from 35% last quarter to 44% this quarter, as Bruce noted. We continue to expect AIPCs to be a greater part of our shipments going forward, reaching 60% to 70% next fiscal year and then above 70% by FY 2028.

Maybe I will just add a few things to what both Karen and Ketan talked about. We are seeing use of generative AI with our technology across government and enterprise customers. The applications use both cloud and, more importantly, edge computing. Over time, and as we hear from customers, they are moving from centralized cloud intelligence—where models were trained—to creating real-time intelligence closer to the employee, consumer, and the workflow.

Your next question comes from the line of Tim Long with Barclays. Please go ahead.

Thank you. Two questions if I could. First, on the move toward subscriptions in both Print and PC: have you seen anything change there? We have heard in other parts of the industry that inflation or component availability might push enterprises or consumers more toward subscription models—are you seeing or expecting that? Second, I wanted to dig into the consumer side. You mentioned price elasticity for units versus ASPs; would that dynamic be different in consumer PC and print as we look into the second half and next year? Thank you.

I will start and ask Ketan to add. On subscriptions, we are focused on driving more recurring revenue where we can across our businesses. We are seeing great traction particularly in print with our All-In Plan which continues to ramp, and we expect to expand it outside of the U.S. next year. The subscription provides a simple, frictionless experience for customers and allows us to attach additional services like paper that make these customers more profitable over the long term versus a traditional print customer.

On PC, especially on the consumer side, we are working on Flex PC, a simplified financing model that makes procurement simpler for customers than buying upfront.

On price elasticity in consumer, we will see how it plays out, but we do anticipate lower unit demand going forward given price increases, and that includes consumer.

To add on price elasticity: as price increases happen, we see demand decline on the low end of the market while strength holds in the mainstream and premium price bands because the relative percentage increase on mainstream and premium is lower than what you see on the low end.

Your next question comes from the line of Mark Newman with Bernstein. Please go ahead.

Hi. Thanks for taking my question. You mentioned earlier that supply was locked in for memory and storage for the rest of the year. Have you also locked in prices too? Can you talk more about how your long-term agreements work? Thanks.

We are confident in our supply position for the rest of the year and are working on supply for next fiscal year, feeling comfortable. In terms of prices, we lock in prices somewhat ahead, but we don't lock them in for very long because we want the ability to benefit if prices stabilize and go down. Ketan, any additional thoughts?

That concludes our question-and-answer session.

I will now turn it back over to Bruce Dale Broussard for closing comments. Thank you all for joining us today. I am proud of how HP executed this past quarter in a complex market and delivered with resilience and discipline while continuing to innovate and position the company for significant opportunity ahead as AI moves to the edge. And, of course, thank you to our employees around the world for their hard work and commitment, and to our investors for the continued confidence you place in us. I look forward to keeping you updated on our progress. Have a good afternoon.

Thank you. Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.